Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-00081/USCOURTS-cand-3_05-cv-00081-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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United States District Court

For the Northern District of California

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 Unless otherwise indicated, the Court relies on facts that it finds to be undisputed. The parties did

not submit a joint statement of undisputed facts but agreed on many facts in their briefs.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ARLOWENE THOMAS,

Plaintiff,

v.

AIG LIFE INSURANCE CO.,

Defendant.

___________________________________/

No. C-05-0081 JCS

ORDER GRANTING PLAINTIFF’S

MOTION FOR SUMMARY JUDGMENT

ON STANDARD OF REVIEW AND

DENYING DEFENDANT’S MOTION FOR

PARTIAL SUMMARY JUDGMENT

[Docket Nos. 31 and 33]

I. INTRODUCTION

On Friday, September 9, 2005, at 1:30 p.m., a hearing was held to address Plaintiff’s Motion for

Summary Judgment on Standard of Review (“Plaintiff’s Motion”) and Defendant’s Motion for Partial

Summary Judgment (“Defendant’s Motion”). The key issue raised in the Motions is the standard of review

that should be applied to Defendant’s decision to deny accidental death benefits to Plaintiff: Plaintiff asserts

that the decision is subject to de novo review, whereas Defendant argues that the decision should be

reviewed for abuse of discretion. For the reasons stated below, the Court concludes that Plaintiff is

correct.

II. BACKGROUND

A. Facts1

Plaintiff’s husband, Terrence Thomas, had a history of hypertension and hyperlipidemia. 

Declaration of Michael J. Kelly in Support of Plaintiff’s Motion for Summary Judgment on Standard of

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Review (“Kelly Decl.”), Ex. 1 (June 11, 2004 Letter from AIG Claims Department to Arlowene Thomas). 

In September 2003, Mr. Thomas experienced chest tightness and subsequently he underwent a procedure

that involved placing a “stent” in an artery near his heart. Id. During the procedure, Mr. Thomas

experienced a rupture in the artery in which the stent was being placed. Kelly Decl., Ex. 4 (April 9, 2004

Opinion Letter of Dr. John Orchard). Mr. Thomas then became hypotensive and could not be

resuscitated. Id., Ex. 1.

Mr. Thomas was covered by an accident insurance policy (“the Policy”) issued by AIG Life

Insurance Co. (“AIG”). See Kelly Decl., Ex. 2 (Policy). It is undisputed that the Policy is governed by the

Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001 et seq. Following Mr.

Thomas’s death, his wife, Arlowene Thomas, filed a claim under the Policy. On June 11, 2004, AIG

denied the claim on the basis that Mr. Thomas’s death was not accidental. Kelly Decl., Ex. 1. Mrs.

Thomas appealed the denial of benefits, and the appeal was denied. Kelly Decl., Ex. 5 (November 5,

2004 Letter from AIG Claims Department to Michael Kelly).

B. Procedural History

On December 16, 2004, Plaintiff brought a state court action against AIG for breach of contract

based on the denial of her claim. See Kelly Decl., Ex. 7 (Stipulation filed February 10, 2005). The action

was removed to this Court, and the parties subsequently stipulated to allow Plaintiff to amend her complaint

to assert a claim for employee benefits under ERISA, 29 U.S.C. § 1132(a)(1)(B).

C. The Motions

Thomas and AIG both bring motions seeking summary judgment regarding the standard of

review that should be applied by the Court in reviewing AIG’s denial of Thomas’s claim. Thomas asserts

that review is de novo because the plan documents do not unambiguously give AIG discretionary authority

to determine her right to benefits. In support of this position, Thomas relies on the Supreme Court’s

decision in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989) and the Ninth Circuit’s

interpretation of Firestone in Kearney v. Standard Ins. Co., 175 F.3d 1084 (9th Cir. 1999). AIG, on the

other hand, asserts that a review of all the circumstances shows that it is a fiduciary because it has the

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 In arguing that the abuse of discretion standard applies, AIG also argues that the exception to the

abuse of discretion standard that applies when there is a conflict of interest does not apply here. Because

Thomas does notrely onthe conflict of interest exception, however, the Court does not reach this issue. AIG

also assertsthat evenifa de novo standard ofreview is applied,theCourtshould not consider evidence outside

of the administrative record that was before AIG during the claims process. Resolution of this question will

depend onthe evidence “necessary to conduct adequate de novo review.” See Kearney, 175 F.3d at 1090.

The Court concludesthat a determination on this issue is premature and therefore declines to rule on it at this

time.

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authority to grant, deny and review denied claims. Accordingly, AIG asserts, it has discretion in making

benefits determinations and its decisions should be reviewed for an abuse of discretion.2

III. ANALYSIS

Under ERISA, “[a] civil action may be brought . . . by a participant or beneficiary . . . to recover

benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify

his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a). ERISA does not,

however, set out the appropriate standard to be applied in such actions. See Firestone, 489 U.S. at 109. 

Prior to Firestone, federal courts applied an arbitrary and capricious standard to such actions, adopting the

standard applied to actions brought under the Labor Management Relations Act (“LMRA”). See id.

Courts reasoned that in imposing a fiduciary duty on plan administrators under ERISA, Congress intended

to incorporate the LMRA fiduciary law into ERISA and thus, the standard of review applied to actions

under the LMRA should also be applied to ERISA actions seeking employee benefits. See id. 

In Firestone, the Supreme Court concluded that “wholesale importation of the arbitrary and

capricious standard into ERISA [was] unwarranted.” Id. (emphasis in original). Rather, the Court 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.” Id. at 115. In reaching this conclusion, the Court drew on principals

of trust law, noting that traditionally, courts have applied a deferential standard of review to actions taken

by trustees that involve the “exercise of a discretion vested in them by the instrument under which they

act.” Id. at 111 (emphasis in original) (citation omitted). On the other hand, where the trust documents do

not give the trustee discretion to construe uncertain terms, courts construe terms in the trust documents

“without deferring to either party’s interpretation,” that is, de novo Id. at 112. 

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The Court in Firestone rejected Firestone’s contention that merely because it was a “fiduciary”

under ERISA, its interpretation of policy language should be reviewed under an abuse of discretion

standard. Id. at 113. Firestone relied on 29 U.S.C. § 1002(a)(1), which gives a fiduciary “authority to

control and manage the operation and administration of the plan,” and on §1133(2), which requires that a

fiduciary provide “full and fair review of claim denials.” The Court, however, pointed to the definition of

“fiduciary” under ERISA, which defines a fiduciary as “one who exercises any discretionary authority or

discretionary control respecting management of [a] plan.” Id. (Quoting 29 U.S.C. § 1002(21)(A)(I))

(emphasis added). The Court emphasized that under this language, a fiduciary does not exercise “entirely

discretionay authority or control.” Id.

In Kearney v. Standard Ins. Co., the Ninth Circuit, applying Firestone, held that in

§ 1132(a)(1)(B) actions, review is de novo unless the plan documents unambiguously confer discretion on

the plan administrator. 175 F.3d at 1089; see also Jordan v. Northrop Grumman Corp. Welfare Benefit

Plan, 370 F.3d 869, 875 (9th Cir. 2003) (citing Kearney for proposition that “review of the

administrator’s decision is de novo, unless the plan unambiguously confers discretion on the administrator”

and holding that there was an unambiguous reservation of discretion where plan gave administrator “the

discretion to construe and interpret the terms of the Plan and the authority and responsibility to make factual

determinations”); McDaniel v. The Chevron Corp., 203 F.3d 1099, 1107 (9th Cir. 2000) (citing

Kearney for proposition that “the presumption of de novo review can be overcome only when a plan's

reservation of discretion is unambiguous” and holding that there was an unambiguous reservation of

discretion where the plan gave the administrator the “sole discretion to interpret the terms of the Plan” and

provided that those interpretations “shall be conclusive and binding”); Bendixen v. Standard Ins. Co., 185

F.3d 939, 943 (9th Cir. 1999) (citing Kearney standard and holding that there was an unambiguous

reservation of discretion where plan included language that the administrator had “full and exclusive

authority to control and manage the Group Policy, to administer claims, and to interpret the Group Policy

and resolve all questions arising in the administration, interpretation, and application of the Group Policy”). 

In Kearney, the defendant asserted that the plan conferred discretion on it to determine whether the

claimant was disabled because the plan provided that benefits would be paid “upon receipt of satisfactory

written proof” of disability. Id. at 1089. The court found this language to be ambiguous because it could

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reasonably be construed both as granting discretion to the administrator and as not granting discretion to the

administrator. Id. at 1089-90. Under these circumstances, the Court held that the proper standard of

review was de novo. Id.

In Sandy v. Reliance Standard Life Ins., 222 F.3d 1202 (9th Cir. 2000), the Ninth Circuit made

clear that Kearney was intended to create a bright-line test that eliminates the need for parties to litigate the

standard of review in every ERISA case:

Although different circuits approach the standard of review somewhat

differently, [FN6] we see great value in clarity (no matter what the rule is).

Kearney has settled the rule for us. That being so, there is little point in

litigating the standard of review in every ERISA case where benefits have

been denied. To do so is expensive, time-consuming, and draining for the

parties as well as the courts. Moreover, the process by which benefits

disputes are resolved should be more efficient, not less. Neither the parties

nor the courts should have to divine whether discretion is conferred. It

either is, in so many words, or it isn't. For sure, there is no magic to the

words "discretion" or "authority"--but we're not at Hogwarts. Therefore, it

should be clear: unless plan documents unambiguously say in sum or

substance that the Plan Administrator or fiduciary has authority, power, or

discretion to determine eligibility or to construe the terms of the Plan, the

standard of review will be de novo.

222 F.3d at 1206-1207. In Sandy, the plan required a participant to “submit satisfactory proof of total

disability” and required the administrator to provide “the specific reason or reasons for denial” and “full and

fair review” of appeals. Id. at 1203-1204. The Court held that this language did not unambiguously confer

discretion on the administrator and de novo review was proper. Id. at 1206. The court noted, “[i]n the

absence of such language, Kearney does not permit discretion to be inferred simply from the fact, standing

alone, that Reliance is making benefits decisions for which it must give reasons.” Id.

Notwithstanding the straight-forward test established by the Ninth Circuit and the strong language

used in Sandy, AIG asks this Court to infer discretion based on AIG’s role as plan administrator without

pointing to any specific language in the plan vesting discretion in the administrator. AIG asserts that its “role

as plan administrator is adequate to confer fiduciary status upon AIG even in the absence of express

language in the insurance policy granting AIG discretionary authority.” Defendant’s Motion at 5. AIG

argues further that the scope of its discretion as a fiduciary should be assessed “in light of all circumstances

and such other evidence of the intention of the [creator] with respect to the [plan] as is not inadmissible.” 

Id. (quoting Firestone, 489 U.S. at 112) (bracketed terms provided by AIG). According to AIG, its

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actions in evaluating the claim and reviewing the claim denial – including retaining coverage counsel and an

independent cardiologist – show that it had “implied discretion to independently administer the plan.” In an

effort to distinguish cases such as Kearney and Sandy, AIG asserts these cases are not on point because

the plan administrators “offered only the insurance policy language” as evidence of their authority. 

Defendant’s Motion at 6.

AIG’s argument flies in the face of all of the cases discussed above. First, the quote from

Firestone used by AIG to suggest that discretion may be implied based on the totality of the circumstances

is taken out of context. The quoted language states, in full, as follows:

The terms of trusts created by written instruments are “determined by the

provisions of the instrument as interpreted in light of all the circumstances

and such other evidence of the intention of the settlor with respect to the

trust as is not inadmissible.”

489 U.S. at 112 (quoting Restatement (Second) of Trusts § 4, Comment d (1959)). By analogy, the

terms of the plan (here, the Policy) are interpreted in light of “all of the circumstances.” Nothing in

Firestone suggests, however, that discretion may be inferred based on the totality of the circumstances in

the absence of specific language in the instrument conferring such discretion. Nor has AIG cited any other

case in which a court has found such “implied discretion.” Moreover, were this Court to find discretion

based on the mere fact that AIG is a fiduciary under ERISA and makes and reviews claim decisions

(including retaining counsel and outside experts as part of that process), it would directly contradict the

clear authority in both Firestone and Sandy that discretion cannot be found based on the mere fact that

AIG is a fiduciary, or that it makes benefits decisions. See Firestone, 489 U.S. at 113 (rejecting argument

that because the defendant was a fiduciary under ERISA, an abuse of discretion standard should be

applied); Sandy, 222 F.3d at 1206 (mere fact that defendant is making benefits decisions for which it must

give reasons is not sufficient to warrant abuse of discretion standard).

AIG’s reliance on IT Corp. v. General American Life Ins. Co., 107 F.3d 1415 (9th Cir. 1415)

and Kyle Railways, Inc. v. Pacific Administration Services, Inc., 990 F.2d 513 (9th Cir. 1993) is

misplaced. Those cases involved claims for breach of fiduciary duty under ERISA and addressed the

question of when an administrator is a fiduciary under ERISA. As the Court made clear in Firestone, this

question is distinct from the question of when discretion is conferred on an administrator by the plan such

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that a decision will be reviewed for an abuse of discretion rather than de novo. See Firestone, 489 U.S. at

113.

IV. CONCLUSION

Plaintiff’s Motion is GRANTED. Defendant’s Motion is DENIED. Because the Policy does not

unambiguously grant AIG discretion to interpret the Policy, the appropriate standard of review is de novo.

IT IS SO ORDERED.

Dated: September 12, 2005

 

JOSEPH C. SPERO

United States Magistrate Judge

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