Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-06247/USCOURTS-cand-4_06-cv-06247-3/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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United States District Court

For the Northern District of California

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1

This motion was unauthorized. The Court's scheduling order

does not provide for a motion for summary adjudication on the

standard of review; the Court contemplated a single motion that

would be heard on November 16, 2007. Nonetheless, the Court will

address Plaintiff's motion. 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CONSTANCE FINLEY,

Plaintiff,

v.

HARTFORD LIFE AND ACCIDENT INSURANCE

CO.; THE BOSTON FINANCIAL GROUP LONGTERM DISABILITY PLAN; and DEMPSEY

INVESTIGATIONS, INC.,

Defendants.

 /

No. C 06-6247 CW

ORDER GRANTING IN

PART AND DENYING

IN PART

PLAINTIFF'S

MOTION FOR

SUMMARY

ADJUDICATION ON

THE STANDARD OF

REVIEW 

Plaintiff moves for summary adjudication on the standard of

review, seeking a determination that de novo is the appropriate

standard of review of her claim for benefits.1 Defendants Hartford

Life and Accident Insurance Co. and The Boston Financial Group

Long-Term Disability Plan oppose the motion and argue that abuse of

discretion is the appropriate standard of review. Having

Case 4:06-cv-06247-CW Document 52 Filed 08/20/07 Page 1 of 12
United States District Court

For the Northern District of California

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2

Plaintiff points out that, as part of a settlement with the

California Insurance Commissioner, Defendant Hartford has agreed to

remove this and similar "discretionary" clauses from its policies. 

3

This was only one of at least 900 surveillance investigations

that Dempsey would perform for Defendant Hartford in 2001. 

Dempsey performed its investigations according to Defendant

Hartford's policies and procedures regarding surveillance. 

Defendant Hartford was Dempsey's major client and, in 2005, when

Dempsey lost Defendant Hartford's business, Dempsey shut down. 

2

considered all of the papers filed by the parties, the Court grants

in part Plaintiff's motion and denies it in part: de novo review is

not appropriate, but the Court shall apply an abuse of discretion

review with a moderate degree of skepticism. 

BACKGROUND

Defendant Hartford issued, and administers, a group long-term

disability policy insuring the Boston Financial Group Long-Term

Disability Plan (the Plan). The policy grants Defendant Hartford

"full discretion and authority to determine eligibility for

benefits and to construe and interpret all terms and provisions of

the Group Insurance Policy."2 Roberts Dec., Ex. B at P00153. This

policy covers eligible Boston Financial Group employees, such as

Plaintiff, in the event they become totally disabled. Plaintiff

became totally disabled as a result of right shoulder impingement

syndrome and left cubital tunnel syndrome. And, on August 16,

1997, Defendant Hartford approved Plaintiff's disability claim. It

paid Plaintiff benefits under the Plan from August, 1997 to

September, 2005.

In January, 2001, Defendant Hartford's Special Investigations

Unit (SIU) asked Dempsey Investigations to perform surveillance on

Plaintiff.3

 Pursuant to Defendant Hartford's instruction, a

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United States District Court

For the Northern District of California

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4Plaintiff states that this video shows an image of her

throwing a ball to her service dog; it is time stamped 2:08:28-

2:08:54. This image, with the same time stamp, immediately repeats

itself, making Plaintiff appear to be more physically active than

she was.

5

Dempsey no longer has the original report. Until recently,

the original video was missing. 

3

Dempsey investigator conducted surveillance of Plaintiff on

February 2, 3 and 4, 2001. On February 7, 2001, Dempsey reported

the results of its surveillance and submitted to the SIU a video of

the surveillance. The report indicates that all three days

Plaintiff was videotaped in her kitchen. 

According to Richard Sawn, Dempsey's vice president, after

receiving the February 7, 2001 report, Jack McGoldrick, SIU's vice

president, contacted him. Mr. McGoldrick requested that Dempsey

delete the video of Plaintiff in her home "because it was in the

residence and they didn't want that video." Sawn Dep., 43:22-44. 

Pursuant to that request, someone at Dempsey revised the video,

deleting images of Plaintiff in her residence. The report was also

revised to reflect that the investigator "observed" Plaintiff in

her home, not that he videotaped her in her home. Dempsey then

resubmitted to Defendant Hartford the surveillance video and

report.4

 The revised report and cover letter contained the same

date as the original report and cover letter: February 7, 2001.5

Mr. Sawn called Mr. McGoldrick to make sure the revised report and

video "looked all right." Id. at 73:9-10. Even though Mr. Sawn

states that, in 2001, Defendant Hartford asked Dempsey to revise

the surveillance video and report, Defendant Hartford states that

it did not request, and Dempsey did not send, a revised February 7,

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2001 report and video in 2001. 

Defendant Hartford retained Dempsey again to conduct

surveillance on Plaintiff. On October 21 to October 23, 2007,

Plaintiff was under surveillance. The report from Dempsey

concerning this surveillance is dated October 30, 2001; however,

the report contains a telephone area code that was not used until

2002. 

In May, 2005, Plaintiff's case was again referred to SIU. An

activity log shows that, at the end of May, Defendant Hartford's

employee contacted Dempsey to obtain copies of the prior

surveillance it had conducted on Plaintiff. The log notes that, on

June 7, 2005, Defendant Hartford received copies of the

surveillance reports and that the videos would follow. Although it

is dated February 7, 2001, Defendant Hartford admits that this

report is different from the first report Dempsey sent. Like the

allegedly revised report sent in 2001, the report sent in 2005

refers to "observing" Plaintiff in her home, not "video of" her in

her home. The report sent in 2005 refers to a telephone area code

that did not come into existence until 2002 and an email address

that Dempsey did not use until 2004. Defendant Hartford contends

that any alterations made to the February 7, 2001 report were made

independently by Dempsey, without prodding from Defendant Hartford. 

Because the report contains the email address Dempsey began using

in 2004, Defendant Hartford contends that Dempsey did not alter the

video until 2004 or 2005. Indeed, Plaintiff acknowledges that the

activity log and backdated invoices suggest that the February, 2001

report and video were not revised until 2005.

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United States District Court

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In June, 2005, at Defendant Hartford's request, another

investigative firm, HUB Enterprises, performed surveillance on

Plaintiff. On June 17, 2005, Plaintiff was videotaped for

approximately one hour and forty-five minutes: "video obtained

depicts [Plaintiff] walking, performing landscaping activities,

bending down, pulling weeds while working in a quick manner,

retrieving garden tools, kneeling, utilizing a tool with her right

[sic], utilizing both hands to remove weeds from the crack along

the driveway edge and pulling and cleaning the weeds from the

cracks." Roberts Dec., Ex. J. The next day, she was videotaped

for approximately six minutes: "video obtained depicts [Plaintiff]

walking at a quick pace, carrying a bag on her left shoulder,

bending to retrieve a newspaper off the ground, entering a vehicle,

operating a vehicle and brushing her dogs." Id. 

Following the surveillance, Defendant Hartford's investigator

interviewed Plaintiff at her home. The investigator showed

Plaintiff the surveillance video. Plaintiff acknowledged that

"some of the activities seen on the video exceeded the restrictions

and limitations outlined by her doctor" and what she had reported

to Defendant Hartford. McIssac Dec., Ex. 3. She explained, "I was

able to do those activities on those days because I had to put the

pain aside out of frustration and not having the funds to hire

someone to do it for me . . . . It was bizarre that the only day in

the last nine years that I did landscaping I was videotaped. It

took me two weeks to recover by resting and bring [sic] the pain

down to my usual level of pain." Id. 

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United States District Court

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Defendant Hartford requested a medical review from University

Disability Consortium (UDC). Dr. Brian Mercer, Board Certified in

Neurology, reviewed Plaintiff's medical records and the

surveillance from June, 2005. He did not examine Plaintiff; UDC

physicians do not examine patients. Nor did he review the

February, 2001 video surveillance. Dr. Mercer called Plaintiff's

physician, who stated that he had not seen Plaintiff in over six

months. Dr. Mercer concluded that Plaintiff's symptoms and

limitations were inconsistent with the activities performed on the

2005 video surveillance and that there were no objective

abnormalities that would preclude Plaintiff from functioning at a

full-time light level job. Plaintiff notes that Defendant Hartford

has a "volume discount type arrangement" with UDC. Strang Dep.

39:20-21. Approximately seventy-five percent of UDC's revenue is

from its business with Defendant Hartford. Id. at 39:11.

On September 21, 2005, Defendant Hartford terminated

Plaintiff's benefits on the grounds that she was no longer totally

disabled as defined under the policy. In reaching this conclusion,

Defendant Hartford largely relied upon the July, 2005 surveillance

and Dr. Mercer's findings. On March 22, 2006, Plaintiff appealed

the termination of her benefits. 

Defendant Hartford requested that two other physicians, one

certified in neurology and clinical neurophysiology, and another

certified in physical medication, rehabilitation and pain medicine,

review Plaintiff's medical records and the July, 2005 surveillance. 

These doctors are employed by Reed Review Services, not UDC. Even

though the surveillance video showed less than two hours of

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activity spread throughout the day, one doctor noted that Plaintiff

spent "several hours performing gardening activities." Roberts

Dec., Ex. M. Like Dr. Mercer, both doctors concluded that

Plaintiff was capable of full-time work. 

Although Plaintiff requested that she be permitted to respond

to any new evidence Defendant Hartford generated, Defendant

Hartford did not provide Plaintiff the opportunity to rebut these 

doctors' conclusion. And, on April 24, 2006, Defendant Hartford

upheld its original decision to terminate Plaintiff's benefits. 

Defendant Hartford did not provide Plaintiff with the reports from

the physicians at Reed Review Services until June 28, 2006.

On September 1, 2006, Plaintiff sent a letter to Defendant

Hartford, attempting to supplement her request for review by

submitting her doctor's response to the Reed Review Services'

physicians' reports. The letter further noted that Defendant

Hartford "had not complied with ERISA, and the regulations issued

thereunder, due to its continuing failure to provide copies of the

surveillance tapes of the surveillance conducted on February 2,

2001 through February 4, 2001 by Dempsey." Roberts Dec., Ex. N. 

Five days later, Defendant Hartford returned the additional

materials Plaintiff had submitted. The letter explained, "Because

we closed our administrative record for this claim on 4/26/06, we

have not reviewed and are returning the documents you included with

your 9/1/06 letter." As for the requested surveillance video, the

letter stated that Plaintiff's request was forwarded to Theresa

Marciel-Carr and that Plaintiff should hear from her soon. Neither

Ms. Marciel-Carr nor anyone from Defendant Hartford, however,

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contacted Plaintiff or her attorney until after Plaintiff filed

this motion. Defendant Hartford has now located the February, 2001

surveillance video. On July 26, 2007, the discovery-cut off date,

it provided Plaintiff with a copy. According to Plaintiff,

however, Defendant Hartford has yet to provide it with a copy of

the original February, 2001 report with a SIU bates-stamp number.

DISCUSSION

The standard of review of a plan administrator's denial of

ERISA benefits depends upon the terms of the benefit plan. Absent

contrary language in the plan, the denial is reviewed under a de

novo standard. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,

115 (1989). However, if "the benefit plan expressly gives the plan

administrator or fiduciary discretionary authority to determine

eligibility for benefits or to construe the plan’s terms," an abuse

of discretion standard is applied. Id. at 102; Abatie v. Alta

Health & Life Insurance Co., 458 F.3d 955 (9th Cir. 2006) (en

banc). There is, however, an exception to this rule. Abatie, 458

F.3d at 971. Here, there is no dispute that the Plan confers

discretion. Thus, unless an exception applies, abuse of discretion

is the appropriate standard of review.

In Abatie, the Ninth Circuit noted that it had recently held

that an administrator’s failure to comply with ERISA procedural

requirements generally does not alter the standard of review from

abuse of discretion review to de novo review. Id. (citing Gatti v.

Reliance Standard Life Ins. Co., 415 F.3d 978, 985 (9th Cir.

2005)). The court recognized, "There are, however, some situations

in which procedural irregularities are so substantial as to alter

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the standard of review," including when “an administrator engages

in wholesale and flagrant violations of the procedural requirements

of ERISA, and thus acts in utter disregard of the underlying

purpose of the plan as well.” Id. In that situation, the court

will “review de novo the administrator’s decision to deny

benefits.” Id. As an example of “this kind of egregious act,” the

court described the administrator’s actions in Blau v. Del Monte

Corp., 748 F.3d 1348 (9th Cir. 1984). There, the administrator

kept the policy details secret from the employees, offered the

employees no claims procedure, and did not provide the employees in

writing the relevant plan information: “in other words, the

administrator ‘failed to comply with virtually every applicable

mandate of ERISA.’” Abatie, 458 F.3d at 971 (quoting Blau, 748

F.2d at 1353).

Plaintiff argues that, here, there were flagrant procedural

violations and, therefore, the Court should review de novo

Defendant Hartford’s decision to terminate her long-term disability

benefits. Contrary to Plaintiff's argument, Defendant Hartford's

actions are not comparable to those in Blau. Plaintiff's

allegation that Defendant Hartford had its investigators alter a

video is troubling, and there is evidence to support that

allegation. The belated finding of the misplaced 2001 video is

also troubling. Nonetheless, reviewing the record, the Court does

not find flagrant violations of ERISA procedure. The procedural

irregularities here were not "so substantial as to alter the

standard of review." 458 F.3d at 971. Thus, under Abatie, an

abuse of discretion remains the proper standard of review. 

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An abuse of discretion standard permits "a court to tailor its

review to all the circumstances before it," including taking into

account any conflict of interest. Id. at 968. Previously, in

Atwood v. Newmont Gold Co. Inc., 45 F.3d 1317, 1323 (9th Cir.

1995), the Ninth Circuit held that, in particular situations, when

an administrator had a conflict of interest, de novo review could

be appropriate. In Abatie, however, the Ninth Circuit held that

its decision in Atwood conflicted with Supreme Court precedent. 

Therefore, the court held that "abuse of discretion review,

tempered by skepticism commensurate with the plan administrator's

conflict of interest," rather than de novo review, applies in

situations where "a plan administrator denies benefits and (1) the

wording of the plan confers discretion on the plan administrator

and (2) the plan administrator has a conflict of interest." 458

F.3d at 959. 

To determine the level of skepticism to apply, the court must

consider "all the facts and circumstances." Id. at 968. The Court

in Abatie explains: 

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 inconsistent reasons for

denial, fails adequately to investigate a claim or ask the

plaintiff for necessary evidence, fails to credit a claimant's

reliable evidence, or has repeatedly denied benefits to

deserving participants by interpreting plan terms incorrectly

or by making decisions against the weight of evidence in the

record.

Id. at 968-69.

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Just as there is no dispute that the Plan here confers

discretion, there is no dispute that Defendant Hartford has a

structural conflict: it is both the plan administrator and the 

funding source. Defendant Hartford contends that this is the only

evidence of conflict and, therefore, the level of skepticism with

which the Court reviews Hartford's benefits decision should be low. 

This contention is without merit. As Plaintiff notes, the

physician reports upon which Defendant Hartford relied mischaracterized the evidence and ignored any evidence by Plaintiff

supporting her disability. For example, one report states that

Plaintiff was gardening for several hours; indeed, Defendant

Hartford makes the same statement in its opposition. That

statement, however, is not supported by the evidence which shows

less than two hours of scattered activity over a ten-hour

surveillance period. Nor was it noted that the investigator from

HUB stated that Plaintiff appeared to show discomfort in her hands,

shaking them from time to time. 

Further, Defendant Hartford does not address the potential

conflict arising from its "volume discount type arrangement" with

UDC and the fact that it is the only insurer with which UDC has a

contract. Defendant Hartford does not deny that it prevented

Plaintiff from responding to any medical records generated after

she submitted her request for review; it denied her request for

review a month after that request was submitted, closing

Plaintiff's file that day. As noted above, Defendant Hartford then

refused to consider Plaintiff's doctor's responses to the medical

reviews Defendant Hartford procured after the request for review.

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Therefore, the Court shall apply an abuse of discretion review

with a moderate degree of skepticism. 

CONCLUSION

Plaintiff's Motion (Docket No. 33) is GRANTED IN PART and

DENIED IN PART and the hearing noticed for August 23, 2007 is

VACATED. De novo review is not appropriate. The Court, however,

finds that there is a structural conflict of interest that is

accompanied by evidence of self-dealing. Therefore, the

appropriate review is abuse of discretion with a moderate degree of

skepticism, "commensurate with the plan administrator's conflict of

interest." Abatie, 458 F.3d at 959.

IT IS SO ORDERED.

Dated: 8/20/07 

CLAUDIA WILKEN

United States District Judge

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