Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_03-cv-00850/USCOURTS-casd-3_03-cv-00850-3/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1001 E.R.I.S.A.: Employee Retirement

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

THOMAS A. JOAS, M.D.,

Plaintiff,

CASE NO. 03CV850 WQH (AJB)

ORDER GRANTING PLAINTIFF’S

MOTION FOR SUMMARY JUDGMENT

AND DENYING DEFENDANT’S

MOTION FOR SUMMARY JUDGMENT

vs.

RELIANCE STANDARD LIFE

INSURANCE COMPANY,

Defendant.

HAYES, Judge:

Pending before the Court are cross-motions for summary judgment following remand from the

Court of Appeal for the Ninth Circuit. (Docs. # 57, 59). On September 24, 2007, the Court heard oral

argument on these matters. (Doc. # 67).

PROCEDURAL BACKGROUND

On or about April 4, 2003, Plaintiff Thomas A. Joas, M.D. filed the Complaint in this matter

against Defendant Reliance Standard Life Insurance Company in the California State Superior Court

in San Diego. (Doc. # 1). Plaintiff alleged that Defendant improperly calculated Plaintiff’s disability

benefits in violation of various state laws. (Doc. # 1). On May 19, 2003, Defendant Reliance

Standard Life Insurance Company removed the case to this Court on the grounds that the dispute was

governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et

seq., and presented a federal question. (Doc. # 1). Plaintiff did not challenge the removal.

Case 3:03-cv-00850-WQH-AJB Document 71 Filed 12/11/07 Page 1 of 16
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On March 25, 2004, the parties filed cross-motions for summary judgment. (Docs. # 16-17,

22-23). Thereafter, on April 29, 2004, the Court granted Defendant’s motion for summary judgment

and denied Plaintiff’s motion for summary judgment. (Doc. # 34). On May 21, 2004, Plaintiff filed

a notice of appeal. (Doc. # 36).

On January 3, 2007, the Court of Appeal for the Ninth Circuit vacated this Court’s Order of

April 29, 2004, and remanded the case back to this Court for reconsideration in light of Abatie v. Alta

Health & Life Insurance Co., 458 F.3d 955 (9th Cir. 2006) (en banc), an intervening Circuit decision

which altered the standard of review for a district court in ERISA cases. (Doc. # 69). On July 25,

2007, the parties filed the pending cross-motions for summary judgment. (Docs. # 57, 59).

FACTS

Plaintiff is a medical doctor licensed to practice medicine in the State of California, with a

specialty in anesthesiology. Declaration of Thomas A. Joas (Joas Decl.) (Doc. # 61), ¶ 2. On July

1, 1971, Plaintiff became a shareholder and employee of Anesthesia Service Medical Group, Inc.

(ASMG), a California corporation. Joas Decl., ¶ 3. As an employee of ASMG, Plaintiff received

monthly compensation which fluctuated depending on (1) “the amount billed and collected by ASMG

for the professional service that [Plaintiff] rendered on ASMG’s behalf,” and (2) the administrative

fee charged by ASMG. Joas Decl., ¶¶ 4, 6. Between November, 1999, and November, 2001, Plaintiff

received the following monthly compensation:

Month Amount

11/99 $ 15,126.17

12/99 $ 17,116.13

1/00 $ 21,714.77

2/00 $ 12,203.08

3/00 $ 9,640.12

4/00 $ 21,917.05

5/00 $ 14,039.76

6/00 $ 8,851.30

7/00 $ 20,037.03

8/00 $ 21,575.97

9/00 $ 22,799.05

10/00 $ 8,617.60

11/00 $ 15,109.80

12/00 $ 20,204.94

1/01 $ 8,063.91

2/01 $ 4,915.79

3/01 $ 12,950.39

4/01 $ 12,749.14

5/01 $ 7,266.23

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6/01 $ 12,635.32

7/01 $ 11,009.22

8/01 $ 18,715.38

9/01 $ 19,492.20

10/01 $ 10,509.75

11/01 $ 8,578.41

Joas Decl., ¶¶ 6, 10

ASMG contracted with Defendant Reliance Standard Insurance Company to provide disability

insurance benefits to ASMG shareholders and employees. Joas Decl., ¶ 8; Declaration of Glen Buberl

(Buberl Decl.) (Doc. # 19), ¶¶ 8-11. ASMG employees were required to participate in “the group

longterm disability insurance program,” and ASMG paid Defendant premiums for long term disability

insurance for the years 2000 and 2001. Buberl Decl., ¶ 10. Each ASMG employee and shareholder

is an anesthesiologist. Buberl Decl., ¶ 5.

The insurance policy entered into between ASMG and Defendant provided monthly disability

benefits to ASMG employees if, among other things, one of the employees “is Totally Disabled as a

result of a Sickness or Injury covered by this Policy.” Declaration of David B. Sharp (Sharp Decl.)

(Doc. # 63), Ex. 1 at 18. To determine the amount of monthly benefits a totally disabled person would

be entitled to under the policy, the policy provided in relevant part:

BENEFIT AMOUNT: To figure the benefit amount payable:

(1) multiply an Insured’s Covered Monthly Earnings by the benefit percentage(s), as

shown on the Schedule of Benefits page;

(2) take the lesser of the amount:

 (a) of step (1) above; or

 (b) the Maximum Monthly Benefit, as shown on the Schedule of Benefits page; and

(3) subtract Other Income Benefits, as shown below, from step (2) above.

Sharp Decl., Ex. 1 at 18. The policy defined “Covered Monthly Earnings” as:

“Covered Monthly Earnings” means the insured’s monthly salary received from you

on the day just before the date of Total Disability, prior to any deductions to a 401(k)

plan. Covered Monthly Earnings do not include commissions, overtime pay, bonuses

or any other special compensation not received as Covered Monthly Earnings.

However, for a salesperson, “Covered Monthly Earnings” will include commissions

received from you averaged over the lesser of:

(1) the number of months worked; or

(2) the 24 months just prior to the date Total Disability began.

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If hourly paid employees are insured, the number of hours worked during a regular

work week, not to exceed forty (40) hours per week, times 4.333, will be used to

determine Covered Monthly Earnings. If an employee is paid on an annual basis, then

the Covered Monthly Earnings will be determined by dividing the basis annual salary

by 12.

Sharp Decl., Ex.1 at 8. It is undisputed that Defendant was responsible for paying benefits under the

insurance policy. Sharp Decl., Ex. 7 at 14. It is further undisputed that the policy granted Defendant

“the discretionary authority to interpret the Plan and the insurance policy and to determine eligibility

for benefits.” Sharp Decl., Ex. 7 at 14.

On November 30, 2001, Plaintiff suffered a major stroke and became totally disabled. Joas

Decl., ¶ 5 & Ex. B. Plaintiff filed a claim under the disability insurance policy entered into between

ASMG and Defendant, and on May 9, 2002, Defendant approved the claim. Joas Decl., ¶¶ 8-9 & Ex.

B. In its letter to Plaintiff approving Plaintiff’s insurance claim, Defendant outlined its benefits

determination, and noted “[y]our net monthly benefit is $1,523.72 payable in accordance with the

terms of the group policy.” Joas Decl., Ex. B. In calculating Plaintiff’s net monthly benefit,

Defendant concluded that Plaintiff was a salaried employee, and thus Plaintiff’s net monthly benefit

was calculated as 60% of Plaintiff’s salary the month before he was disabled, less retirement pension

and California state disability payments. Joas Decl., Ex. B. In calculating Plaintiff’s benefits,

Defendant used Plaintiff’s November, 2001, compensation of $8,578.41, as follows:

Monthly Eligible Salary @ 60% [60% of $8,578.41] $5,147.05

Less Retirement Pension $1,500.00

Less CA State Disability $2,123.33

Monthly Benefit $1,523.72

See Joas Decl., Ex. B.

Plaintiff immediately disagreed with Defendant’s benefits calculation. On May 21, 2002,

Plaintiff wrote Defendant to outline Plaintiff’s concerns and to indicate that Plaintiff did not accept

Defendant’s benefits determination. Joas Decl., ¶ 10 & Ex. C. In the letter, Plaintiff noted that his

compensation fluctuated month-to-month, and indicated that he should be classified as a salesperson

as opposed to a salaried employee. Joas Decl., Ex. C. As a “salesperson” under the policy, Plaintiff

would have received 60% of his average monthly compensation over the previous twenty-four months,

less retirement and California state disability deductions, which would have resulted in monthly

benefit payments of approximately $5,058.17, or $3,534.45 more per/month than Defendant outlined

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in its letter of May 9, 2002. Joas Decl., ¶ 14. Plaintiff’s letter stated that, “I do not expect to be

penalized by the fact that my stroke happened to occur at the end of a period for which I had taken a

lot of time off to attend professional meetings.” Joas Decl., Ex. C.

Defendant did not immediately respond to Plaintiff’s letter of May 21, 2002, and on June 17,

2002, Plaintiff sent a follow-up letter to Defendant. Joas Decl., Ex. D. Plaintiff wrote that:

I now find that it has been six and a half months since my stroke and I still do not have

a final determination as to the payments to which I am entitled under my disability

insurance. I wrote to you on May 21, 2002 and raised a fairly straightforward point

about your interpretation of the meaning of the language in my disability policy and

now, over three weeks later, I have received no response to my questions. Since the

point that I raised is not complicated, it would seem to me that I should be able to

obtain a prompt response without having to enlist the services of an attorney.

Joas Decl., Ex. D. In a letter dated June 25, 2002, Defendant responded to Plaintiff’s letters, and, after

citing the language of the policy, concluded that,

We do understand your earnings fluctuate from month to month based upon the work

you perform and the fees collected; however, our position is an Anesthesiologist is not

a “salesperson”. We must administer your benefits according to the provisions of your

group policy. It is not our intent to penalize you; we would have used the same pay

period had your earnings been higher.

Joas Decl., Ex. E.

After receiving Defendant’s letter of June 25, 2002, Plaintiff retained attorney David B. Sharp

to assist with recovering benefits from Defendant. Joas Decl., ¶ 13. On September 12, 2002, Sharp

wrote to Defendant seeking “copies of all documents and records which were relevant to determining

[Dr. Joas’s] benefit payment.” Declaration of David B. Sharp (Sharp Decl.) (Doc. # 63), Ex. 4. Sharp

also sought, “copies of internal rules, guidelines, protocol and other criteria relied upon in making

Reliance’s determination,” as well as “examples of similarly situated persons where Reliance used the

same benefit analysis as for Dr. Joas, and examples of similarly situated persons for which Reliance

used a different method of determining benefits than you did for Dr. Joas.” Sharp Decl., Ex. 4. 

Reliance did not immediately answer Sharp’s letter of June 25, 2002, resulting in follow-up

letters dated October 4, 2002, and October 22, 2002, in which Sharp once again requested copies of

all relevant documentation. Sharp Decl., Exs. 5-6. Thereafter, in a letter dated October 21, 2002,

Defendant responded to Sharp’s request, noting, “We apologize for our delay in responding . . . . As

per your request, enclosed are copies of all relevant documents and records pertaining to Dr. Joas’

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benefit payment.” Sharp Decl., Ex. 7. Defendant’s letter of October 21, 2002, did not address Sharp’s

request for examples of similarly situated persons, and did not include “work papers or documents

generated or created by . . . any [claim] examiner,” or Defendant’s “file.” Sharp Decl., Exs. 7-8. On

October 25, 2002, and December 12, 2002, Sharp authored letters to Defendant again seeking the

previously requested information and documentation. Sharp Decl., Exs. 8, 11, 13. On November 12,

2002, Sharp filed an official request for review of Defendant’s benefits decision. Sharp Decl., Ex. 10.

Defendant did not address Sharp’s requests for examples of similarly situated persons or “work

papers” created by any examiner until December 26, 2002, and then simply noted that, “[p]lease be

advised that we have given you all of the information you have requested. . . . Unfortunately, we

cannot disclose to you data referencing other claimants.” Sharp Decl., Ex 12. Sharp’s later requests

for specific examples and other information went unanswered. Sharp Decl., Exs. 13-15.

On July 25, 2007, and in connection with the cross-motions for summary judgment, Defendant

filed the administrative record in this case. (Doc. # 58). The administrative record filed on July 25,

2007, included substantially more documents than were provided to Plaintiff and the Court in 2004

when the Court ruled on the parties’ previous motions for summary judgment. See (Doc. # 24); Sharp

Decl., Ex. 7.

STANDARDS OF REVIEW

I. Summary Judgment

Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure where

the moving party demonstrates the absence of a genuine issues of material fact and entitlement to

judgment as a matter of law. FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317,

322 (1986). A fact is material when, under the governing substantive law, it could affect the outcome

of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute over a material fact

is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving

party.” Id.

In ruling on a motion for summary judgment, “[t]he district court may limit its review to the

documents submitted for purposes of summary judgment and those parts of the record specifically

referenced therein.” Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1030 (9th Cir.

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2001). The court must view all inferences drawn from the underlying facts in the light most favorable

to the nonmoving party. Matsushita, 475 U.S. at 587.

II. ERISA Benefits Decision

The parties seek review of Defendant’s decision to deny certain benefits to Plaintiff under the

insurance policy. Under the facts of this case, it is undisputed that Defendant both funded the

insurance policy and had discretion to interpret the policy’s terms and decide eligibility for benefits.

The parties agree that Defendant operated under a structural conflict of interest. 

A. The Abatie Standard Generally

Where an ERISA-covered plan confers discretionary authority to interpret the plan upon a plan

administrator operating under a conflict of interest, a district court reviewing a benefits decision made

pursuant to the plan applies the standard of review articulated in Abatie v. Alta Health & Life

Insurance, 458 F.3d 955 (9th Cir. 2006) (en banc). In Abatie, the Court of Appeal for the Ninth

Circuit held that, where a plan confers discretion upon a conflicted plan administrator to interpret the

plan, a district court reviews the decision of the conflicted plan administrator for an abuse of

discretion, “tempered by skepticism commensurate with the plan administrator’s conflict of interest.”

Abatie, 458 F.3d at 959. Specifically, the Court of Appeal for the Ninth Circuit held that:

[a] district court, when faced with all the facts and circumstances, must decide in each

case how much or how little to credit the plan administrator’s reason for denying

insurance coverage. An egregious conflict may weigh more heavily (that is, may cause

the court to find an abuse of discretion more readily) than a minor, technical conflict

might. But in any given case, all the facts and circumstances must be considered . . .

. A straightforward abuse of discretion analysis allows a court to tailor its review to

all the circumstances before it.

Abatie, 458 F.3d at 968. Though the Court of Appeal noted that the standard articulated in Abatie was

“indefinite,” the Court added that the district court’s task was akin to assessing a witness’s credibility

in a bench trial–“[w]hat the district court is doing in an ERISA benefits denial case is making

something akin to a credibility determination about the insurance company’s or plan administrator’s

reason for denying coverage under a particular set of medical and other records.” Abatie, 458 F.3d

at 969. The Court added that,

The level of skepticism with which a court views a conflicted administrator’s decision

may be low if a structural conflict of interest is unaccompanied, for example, by any

evidence of malice, of self-dealing, or of a parsimonious claims-granting history. A

court may weigh a conflict more heavily if, for example, the administrator provides

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inconsistent reasons for denial, Lang, 125 F.3d at 799; fails adequately to investigate

a claim or ask the plaintiff for necessary evidence, Booton v. Lockheed Med. Benefit

Plan, 110 F.3d 1461, 1463-64 (9th Cir. 1997); fails to credit a claimant’s reliable

evidence, Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834 (2003); or has

repeatedly denied benefits to deserving participants by interpreting the plan terms

incorrectly or by making decisions against the weight of evidence in the record.

Abatie, 458 F.3d at 968-69. In determining “the nature, extent, and effect on the decision-making

process of any conflict of interest,” the district court may consider evidence outside the administrative

record. Abatie, 458 F.3d at 970.

B. The Standard of Review Under the Facts of This Case

Defendant contends that the structural conflict of interest is a technical conflict which should

not substantially alter the abuse of discretion standard of review. Defendant contends that the Court

should employ an abuse of discretion standard of review tempered with only a low level of skepticism

under the facts of this case. Plaintiff contends that the Court should review Defendant’s benefits

decision either de novo or for an abuse of discretion tempered with a substantial and high degree of

skepticism. Plaintiff contends that the facts of this case warrant a high degree of skepticism toward

Defendant’s interpretation because Defendant (1) failed to comply with ERISA’s administrative

review requirements, (2) has interpreted similar policy language inconsistently in other cases, (3)

failed to produce relevant information which Plaintiff requested in order to challenge Defendant’s

benefits determination, and (4) produced an administrative record in July, 2007, which included

documents which had not been lodged with the Court or provided to Plaintiff prior to the originally

filed cross-motions for summary judgment.

Where an ERISA plan denies an insured benefits, ERISA requires the plan to “establish and

maintain a procedure by which a claimant shall have a reasonable opportunity to appeal an adverse

benefit determination . . . under which there will be a full and fair review of the claim and the adverse

benefit determination.” 29 C.F.R. § 2560.503-1(h)(1) (emphasis added). The claims procedures will

not be deemed to provide a claimant with a reasonable opportunity for a “full and fair review” of a

claim and adverse benefit decision unless, among other things, the claims procedures,

(iii) Provide that a claimant shall be provided, upon request and free of charge,

reasonable access to, and copies of, all documents, records, and other information

relevant to the claimant’s claim for benefits. Whether a document, record, or other

information is relevant to a claim for benefits shall be determined by reference to

paragraph (m)(8) of this section;

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(iv) Provide for a review that takes into account all comments, documents, records, and

other information submitted by the claimant relating to the claim, without regard to

whether such information was submitted or considered in the initial benefit

determination.

29 C.F.R. § 2560-503-1(h)(2)(iii)-(iv). A document, record, or other information is “relevant” to a

claimant’s claim for benefits if such document, record, or other information,

(i) Was relied upon in making the benefit determination, (ii) Was submitted,

considered, or generated in the course of making the benefit determination . . . , (iii)

Demonstrates compliance with the administrative processes and safe-guards required

pursuant to paragraph (b)(5) of this section in making the benefits determination, or

(iv) . . . constitutes a statement of policy or guidance with respect to the plan . . . .

29 C.F.R. § 2560.503-1(m)(8). In order for the claims procedures to be reasonable, 29 C.F.R. §

2560.503-1(b)(5) requires that the claims procedures must, “contain administrative processes and

safeguards designed to insure and to verify that benefit claim determinations are made in accordance

with governing plan documents and that, where appropriate, the plan provisions have been applied

consistently with respect to similarly situated claimants.”

It is undisputed in this case that Defendant did not provide Plaintiff with examples of how

Defendant interpreted the terms of the policy with respect to similar situated persons seeking benefits,

or examples of persons whom Defendant previously deemed to be either salespersons or salaried

employees under the policy, even though that information was requested by Plaintiff on numerous

occasions. Sharp Decl., ¶¶ 4-6, 8, 11, 13. Defendant failed to address Plaintiff’s request for examples

several times, before informing Plaintiff that “[u]nfortunately, we cannot disclose to you data

referencing other claimants.” Sharp Decl., Ex 12. Defendant did not offer or provide Plaintiff

examples of similar situated persons which redacted potentially personal or confidential information,

and there is no evidence before the Court which would permit an inference that Defendant sought to

or considered its duty to interpret the policy consistently when it interpreted the policy with respect

to Plaintiff’s claim. See 29 C.F.R. §§ 2560.503-1(b)(5), (m)(8). The Court concludes that

Defendant’s failure to provide Plaintiff with requested information and to consider whether it was

interpreting the insurance policy consistently during Plaintiff’s benefits determination requires this

Court to temper the abuse of discretion standard of review with a fair amount of skepticism. See

Abatie, 458 F.3d at 972.

In addition to failing to follow ERISA review requirements in full, the Court notes that

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Defendant advocated a different interpretation of similar “covered monthly earnings” language in a

case before the Court of Appeal for the Fifth Circuit, and the Court concludes that this fact also

requires the Court to temper with skepticism the abuse of discretion standard under the facts of this

case. In Keszenheimer v. Reliance Standard Life Ins. Co., 402 F.3d 504 (5th Cir. 2005), Defendant

took the position that salary was fixed compensation paid regularly, as opposed to Defendant’s

position in this case that salary is a fixed method of calculating compensation. Defendant argued in

Keszenheimer that an income which fluctuates month-to-month does not plainly fit the definition of

monthly salary, which is contrary to the position Defendant advocates in this case. Id. at 507-09.

After reviewing Abatie and the facts before the Court on summary judgment, the Court

concludes that it must review Defendant’s decision to deny Plaintiff benefits under the policy for an

abuse of discretion tempered with an elevated degree of skepticism and scrutiny for the reasons stated

above. See, e.g., Archuleta v. Reliance Standard Life Ins. Co., 504 F. Supp. 2d 876, 884-85 (C.D. Cal.

2007). As established by other courts, “[a]n ERISA administrator abuses its discretion only if it (1)

renders a decision without explanation, (2) construes provisions of the plan in a way that conflicts with

the plain language of the plan, or (3) relies on clearly erroneous findings of fact.” Wells v. Reliance

Standard Life Ins. Co., CV 06-32-M-DWM-JCL, 2007 U.S. Dist. LEXIS 16885, *11 (D. Mont. Jan.

11, 2007) (citing Boyd v. Bell/Rozell NFL Players Retirement Plan, 410 F.3d 1173, 1178 (9th Cir.

2005)).

DISCUSSION

In authorizing disability benefits for Plaintiff under the policy, Defendant deemed Plaintiff a

salaried employee, and calculated Plaintiff’s monthly benefit using Plaintiff’s November, 2001,

compensation of $8,578.41. Defendant concluded that Plaintiff was not a “salesperson” as that term

is used in the policy’s definition of “covered monthly earnings” because Plaintiff’s job description was

unlike that of a salesperson, and in Defendant’s opinion, “an Anesthesiologist [is] not a salesperson.”

See Sharp Decl., Ex 14. Plaintiff immediately objected to Defendant’s benefit calculation, and sought

administrative review of the decision with the help of attorney Sharp. Thereafter, Defendant denied

Plaintiff’s administrative appeal on the grounds that Plaintiff could not be considered a salesperson

under the policy. The question before the Court is whether Defendant abused its discretion by

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classifying Plaintiff as a salaried employee under the policy and denying additional benefits which

Plaintiff requested.

I. Standard for Reviewing ERISA Policy Language

In order to determine whether Defendant abused its discretion in classifying Plaintiff as a

salaried employee and denying benefits, the Court must examine and interpret the “plain language”

of the insurance policy using developed principles of federal common law. See Canseco v.

Construction Laborers Pension Trust for So. Calif., 93 F.3d 600, 606 (9th Cir. 1996); Padfield v. AIG

Life Ins. Co., 290 F.3d 1121, 1125 (9th Cir. 2002). Under the federal common law of ERISA, a

district court “interpret[s] terms in ERISA insurance policies in an ordinary and popular sense as

would a person of average intelligence and experience.” Padfield, 290 F.3d at 1125. It is established

that “trustees abuse their discretion if they . . . construe provisions of [a] plan in a way that clearly

conflicts with the plain language of the plan.” Canseco, 93 F.3d at 606; see also Johnson v. The

Trustees of the Western Conf. of Teamsters, 879 F.2d 651, 654 (9th Cir. 1989); Neathery v. Chevron

Texaco Corp. Group Accident Policy, Case No. 05CV1883 JM (CAB), 2007 U.S. Dist. LEXIS 55351,

*23 (S.D. Cal. July 31, 2007). Where an ERISA plan administrator is granted discretion to interpret

insurance policy language and a Plaintiff challenges the administrator’s interpretation, the question

the Court must ask is not “whose interpretation of the plan documents is most persuasive, but whether

the [plan administrator’s] interpretation is unreasonable.” Canseco, 93 F.3d at 606 (citation omitted).

II. Whether Defendant Abused Its Discretion in Interpreting Policy Language

On May 9, 2002, Defendant determined that Plaintiff was totally disabled. Sharp Decl., Ex.

2. Pursuant to the insurance policy, Plaintiff was entitled to a monthly benefit equal to 60% of his

“Covered Monthly Earnings,” less other income benefits. Sharp Decl., Ex. 1 at 6, 18. The policy

defined “Covered Monthly Earnings” as: 

“Covered Monthly Earnings” means the insured’s monthly salary received from you

on the day just before the date of Total Disability, prior to any deductions to a 401(k)

plan. Covered Monthly Earnings do not include commissions, overtime pay, bonuses

or any other special compensation not received as Covered Monthly Earnings.

However, for a salesperson, “Covered Monthly Earnings” will include commissions

received from you averaged over the lesser of:

(1) the number of months worked; or

(2) the 24 months just prior to the date Total Disability began.

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If hourly paid employees are insured, the number of hours worked during a regular

work week, not to exceed forty (40) hours per week, times 4.333, will be used to

determine Covered Monthly Earnings. If an employee is paid on an annual basis, then

the Covered Monthly Earnings will be determined by dividing the basis annual salary

by 12.

Sharp Decl., Ex.1 at 8.

Defendant contends that Plaintiff’s “Covered Monthly Earnings” were his “monthly salary”

received on the day just before Plaintiff became totally disabled. Defendant contends that Plaintiff

cannot be considered a salesperson because (1) Plaintiff did not sell anything while employed by

ASMG, (2) Plaintiff received a monthly salary based on a fixed method of calculation, and (3)

Plaintiff never received compensation which could be considered a commission. Plaintiff contends

that he did not receive a monthly salary while working for ASMG and that he should have been

classified as a salesperson under the plain language of the policy because his compensation severely

fluctuated from month to month depending on how much he worked. Plaintiff asserts that his

compensation regime was more closely akin to that of a commissioned salesperson than a salaried

employee. Plaintiff contends that he is entitled to “Covered Monthly Earnings” equal to the average

of all his commissions received over the “24 months just prior to the date Total Disability began.”

Sharp Decl., Ex. 1 at 8.

The policy specifically provides four alternative definitions of “Covered Monthly Earnings.”

Sharp Decl., Ex. 1 at 8. If an employee receives a “monthly salary,” “Covered Monthly Earnings”

means the monthly salary received on the day before total disability. Sharp Decl., Ex. 1 at 8. If an

employee is a salesperson, “Covered Monthly Earnings” means the employee’s salary plus

commissions earned over either the previous 24 months before disability or the total number of months

worked. Sharp Decl., Ex. 1 at 8. Finally, if an employee is paid hourly, “Covered Monthly Earnings”

means the number of hours worked during an average week times 4.33, and if an employee is paid

annually, “Covered Monthly Earnings” means the base annual salary divided by twelve. Sharp Decl.,

Ex. 1 at 8. Here, the parties agree that Plaintiff was neither paid annually nor hourly, and thus the

question before the Court is whether Defendant’s decision to classify Plaintiff as a salaried employee

as opposed to a salesperson was an unreasonable interpretation of the policy.

In including four alternative definitions for “Covered Monthly Earnings,” the policy as a whole

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intended to ensure that disability benefits for individual employees fairly stemmed from their average

compensation for any given month or week. Where an employee was paid a fixed monthly salary, that

salary was used as “Covered Monthly Earnings.” However, where an employee did not receive a

fixed monthly salary, and instead was paid according to sales made or hours worked, the policy clearly

provided that the employee should receive a monthly benefit which took into account and factored in

fluctuations in earnings from month-to-month and week-to-week. The policy ensured that a disabled

hourly employee would not be without benefits because he was on vacation the week preceding his

disability, and a salesperson paid in part based on sales would not be penalized simply because he

made no sales the month before becoming totally disabled. Similarly, the policy provided that an

employee paid once a year would receive benefits equal to 1/12 of his yearly salary, thus ensuring that

the annually paid employee would receive a monthly benefit commensurate to his work and the

benefits received by other similarly disabled employees who had been paid at regular intervals. The

Court finds that, when interpreted in “an ordinary and popular sense as would a person of average

intelligence and experience,” the varied definitions of “Covered Monthly Earnings” protected disabled

employees benefits by ensuring that those with fluctuating monthly or weekly compensation which

have their benefits calculated by looking at greater periods of time than simply the day, week, or

month before total disability. See Padfield, 290 F.3d at 1125.

“Salary” is commonly defined as a “fixed compensation for services, paid on a regular basis.”

Order of April 29, 2004 at 10 (citing Webster’s II New College Dictionary 226 (3d ed. 2001)); see

also Keszenheimer v. Reliance Standard Life Ins. Co., 402 F.3d 505, 508 (5th Cir. 2005) (“Salary is

fixed compensation paid regularly (as by the year, quarter, month, or week) for services.”). In this

case, Plaintiff’s monthly compensation was not fixed, and, in fact, fluctuated significantly depending

on a number of factors, some of which were out of Plaintiff’s control. Joas Decl., ¶¶ 4, 6.

Accordingly, the Court concludes that it is not reasonable to find that Plaintiff received a “monthly

salary” as that term is used in the policy. This conclusion comports with that of the Court of Appeal

for the Fifth Circuit’s conclusion in Keszenheimer v. Reliance Standard Life Ins. Co., where the Court

held that,

Compensation paid ad hoc for working discrete blocks of time–such as an hourly

wage–is not typically considered salary. Not unlike an hourly wage earner,

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Keszenheimer’s per diem and auto allowance compensation were not fixed, but were

paid only for the days that he worked offshore. Given the fluctuation in income dayto-day and month-to-month, this does not fit the plain meaning of ‘monthly salary’ as

contemplated in the policy and as commonly understood.

Keszenheimer, 402 F.3d at 508. Indeed, Plaintiff’s compensation, paid on a fluctuating basis and

based on his work for “discrete blocks of time,” is not fixed, and does not fit within the plain meaning

of “monthly salary” as used in the insurance policy. See Sharp Decl., Ex.1 at 8.

Defendant contends that Plaintiff received a monthly salary because the method of calculating

Plaintiff’s compensation was fixed. However, as noted by this Court previously, salary is generally

defined as “fixed compensation,” which is not the same as “a fixed method of compensation.” Order

of April 29, 2004 at 10. Furthermore, as noted in Keszenheimer, one of the key characteristics of

salary is that it does not fluctuate. Keszenheimer, 402 F.3d at 508. Under the facts of this case, it is

clear that Plaintiff’s monthly compensation fluctuated significantly–Plaintiff earned $22,799.05 in

September of 2000, and only $4,915.79 in February of 2001.

After interpreting the pertinent policy language in this case, the Court concludes that Plaintiff

did not receive a “monthly salary,” as that term is used in the policy. Rather, after reviewing the

method in which ASMG compensated Plaintiff, the Court concludes that Plaintiff’s monthly

compensation regime is akin to commissions earned by salespersons. Plaintiff in effect sold his

services to ASMG, allowing ASMG to bill and collect from patients and pay Plaintiff a percentage.

Joas Decl., ¶¶ 4-6. Plaintiff only received compensation when he sold and performed medical

services. If Plaintiff did not work, Plaintiff was not paid.

Under the policy at issue in this case, a salesperson’s covered monthly earnings include

“commissions.” Sharp Decl., Ex. 1 at 8. “Commission” is commonly defined as “a fee or percentage

paid to a salesperson or agent for his or her services.” Order of April 29, 2004 (Doc. # 34) at 9-10;

see also Keszenheimer, 402 F.3d at 510. Here, not only did Plaintiff in effect sell his services to

ASMG, ASMG paid Plaintiff according to a formula “dependent upon the amount billed and collected

by ASMG” for services which Plaintiff rendered on ASMG’s behalf. Joas Decl., ¶ 4. Furthermore,

before paying Plaintiff, ASMG deducted an administrative fee based upon a “percentage of the amount

that ASMG billed and collected,” which percentage varied over the years and effected Plaintiff’s

compensation. Joas Decl., ¶ 4. 

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After reviewing and interpreting the policy language as a whole in “an ordinary and popular

sense as would a person of average intelligence and experience” see Padfield, 290 F.3d at 1125, the

Court concludes that under the facts of this case, Defendant’s decision to classify Plaintiff as a salaried

employee “construe[d] provisions of the plan in [a] way that conflict[ed] with the plain language of

the plan,” and was unreasonable and an abuse of discretion. Wells, CV 06-32-M-DWM-JCL, 2007

U.S. Dist. LEXIS 16885, *11 (D. Mont. Jan. 11, 2007) (citing Boyd v. Bell/Rozell NFL Players

Retirement Plan, 410 F.3d 1173, 1178 (9th Cir. 2005)); see also Canseco, 93 F.3d at 606; Johnson

v. The Trustees of the Western Conf. of Teamsters, 879 F.2d 651, 654 (9th Cir. 1989); Neathery v.

Chevron Texaco Corp. Group Accident Policy, Case No. 05CV1883 JM (CAB), 2007 U.S. Dist.

LEXIS 55351, *23 (S.D. Cal. July 31, 2007). 

CONCLUSION

Under the facts of this case Plaintiff’s “Covered Monthly Earnings” were equal to Plaintiff’s

average compensation received during the “24 months just prior to the date Total Disability began.”

Sharp Decl., Ex. 1 at 8. After reviewing the declarations and evidence submitted, Plaintiff’s average

compensation for the 24 months just prior to the date of total disability was $14,469.17. See Joas

Decl., ¶ 6. Thus, Plaintiff’s monthly benefit should have been calculated as follows:

Monthly Eligible Salary @ 60% [60% of $14,469.17] $8,681.50

Less Retirement Pension $1,500.00

Less CA State Disability $2,123.33

Monthly Benefit $5,058.17

See, e.g., Joas Decl., Ex. B. Defendant calculated Plaintiff’s monthly benefit using Plaintiff’s

November, 2001, compensation of $8,578.41, and thus concluded that Plaintiff was entitled to

$1,523.72 per/month. The Court concludes that Defendant abused its discretion in calculating

Plaintiff’s monthly benefit. 

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It is hereby ORDERED that:

(1) Plaintiff’s motion for summary judgment (Doc. # 59) is GRANTED.

(2) Defendant’s motion for summary judgment (Doc. # 57) is DENIED.

Plaintiff shall submit a proposed judgment to the Court within 15 days of this Order.

Defendant may file objections to the proposed judgment within 15 days of receipt of Plaintiff’s

proposed judgment.

IT IS SO ORDERED.

DATED: December 11, 2007

WILLIAM Q. HAYES

United States District Judge

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