FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MARK STEPHAN, 

Plaintiff-Appellant, No. 10-16840

v. D.C. No.  3:08-cv-01935-MHP UNUM LIFE INSURANCE COMPANY OF

AMERICA, OPINION

Defendant-Appellee. 

Appeal from the United States District Court

for the Northern District of California

Marilyn H. Patel, Senior District Judge, Presiding

Argued and Submitted

December 8, 2011—San Francisco, California

Filed September 12, 2012

Before: Diarmuid F. O’Scannlain, Robert E. Cowen,* and

Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon;

Dissent by Judge O’Scannlain

*The Honorable Robert E. Cowen, Senior Circuit Judge for the Third

Circuit, sitting by designation. 

11077
COUNSEL

Mark D. DeBofsky, Daley, DeBofsky & Bryant, Chicago, Illinois; Terrence J. Coleman and Brian H. Kim, Pillsbury &

Levinson, LLP, San Francisco, California, for the appellant.

Anna M. Martin and Kevin G. Gill, Rimac Martin, P.C., San

Francisco, California, for the respondent.

OPINION

BERZON, Circuit Judge:

In August 2007, just three months after he had begun a new

job at Thomas Weisel Partners (“TWP”), Plaintiff-Appellant

Mark Stephan (“Stephan”) had a bicycling accident that

resulted in a spinal cord injury, rendering him quadriplegic

and thus permanently disabled. Stephan was insured under

TWP’s long-term disability insurance plan, underwritten and

administered by Defendant-Appellee Unum Life Insurance

Company (“Unum”). Stephan disputes Unum’s calculation of

his pre-disability earnings, upon which his disability benefits

were based. In calculating his earnings, Unum included only

Stephan’s monthly salary but not his annual bonus. Stephan’s

earnings, and therefore his disability benefits, would be considerably higher if the bonus were included. 

The central issue in this appeal is whether the bonus should

have been counted. The district court reviewed Unum’s decision and upheld Unum’s benefit determination. The court also

denied Stephan’s motion to compel discovery of a series of

internal memoranda created by Unum’s in-house counsel

regarding Stephan’s claim. Stephan appeals from each of the

district court’s rulings. 

We agree with the district court that the applicable standard

of review is abuse of discretion. The district court also corSTEPHAN v. UNUM LIFE INSURANCE 11081
rectly held that because Unum was responsible both for evaluating benefits claims and paying them, it operated under a

conflict of interest, which “ ‘must be weighed as a factor in

determining whether there is an abuse of discretion’ ” (quoting Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 113 (2008)).

However, in determining what weight ought to be given the

conflict, the district court erred in three ways: First, it failed

to apply the traditional rules of summary judgment to its analysis of whether and to what extent a conflict of interest

impacted Unum’s benefits determination. Second, it incorrectly held that certain internal memoranda between Unum’s

claims analyst and its in-house counsel were not discoverable.

Finally, it did not take into account substantial evidence that

Unum’s conflict of interest “infiltrated the entire decisionmaking process” and therefore ought to be accorded “significant weight.” Montour v. Hartford Life & Accident Ins. Co.,

588 F.3d 623, 634 (9th Cir. 2009). 

We remand to the district court to reconsider the impact of

Unum’s conflict of interest; correspondingly, what weight to

accord the conflict in determining whether Unum abused its

discretion; and ultimately whether Unum did indeed abuse its

discretion in failing to include Stephan’s bonus in his predisability earnings. 

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Plan

The long-term disability insurance policy (“the Plan”)

issued by Unum to TWP, Stephan’s employer, “provide[d]

financial protection” for TWP employees should they become

disabled, by ensuring that disabled employees would continue

to receive sixty percent of their monthly earnings up to a maximum of $20,000. The Plan authorized Unum to interpret its

provisions and to determine claimants’ eligibility for benefits.

11082 STEPHAN v. UNUM LIFE INSURANCE
B. Stephan’s Claim

On April 18, 2007, TWP offered Stephan a position as

Managing Director in its Institutional Sales department. Stephan’s offer letter stated, in relevant part:

Your salary rate will be $200,000 annually. Your

salary will be paid semi-monthly, less payroll deductions and all required withholdings. You will be eligible to participate in Thomas Weisel Partners’

discretionary bonus program. Although bonuses are

generally discretionary, you will be guaranteed [a]

$300,000 bonus for your first 12 months of employment, provided you perform at the level both you

and we anticipate and that you have not voluntarily

terminated your employment or been terminated for

cause prior to the relevant payment dates.

When he accepted his new position, Stephan became insured

under TWP’s policy, underwritten by Unum. 

Four months later, Stephan suffered a severe spinal cord

injury in a bicycling accident, as a result of which he became

quadriplegic. Shortly thereafter, he applied for disability benefits under the Plan. On December 3, 2007, Unum sent Stephan a letter stating that his disability claim had been

approved and specifying that Stephan would receive disability

benefits of $10,000 per month. Unum based this amount on

Stephan’s annual salary of $200,000 per year. Later that

month, TWP paid Stephan the $300,000 bonus promised in

his offer letter.

Stephan appealed Unum’s benefits determination, arguing

that his benefits should have been based not on his annual salary of $200,000 per year but on an annual income of

$500,000 — his base salary plus the annual bonus guaranteed

to him in his offer letter. In support of his appeal, Stephan

pointed to the disability claim form submitted by TWP

STEPHAN v. UNUM LIFE INSURANCE 11083
Human Resources, which stated that Stephan’s annual earnings were $500,000; the insurance premiums TWP paid

Unum based on that rate of compensation; and Stephan’s

offer letter guaranteeing him a bonus of $300,000. Stephan

also attached several additional documents to his appeal: He

provided Unum a memo from TWP explaining that “in each

month prior to the date of [Stephan’s] disability, TWP

recorded compensation expense, associated with the cash

component of [his] guaranteed bonus payment”; another

memo from TWP explaining how the company calculated its

insurance premiums; and a letter from accountant and former

Unum Director of Financial Assessment, Carol Poulin, analyzing Stephan’s claim and finding that “Mr. Stephan’s

monthly income,” on which his disability benefits should be

based, “consists of both his pro-rated salary and pro-rated

guaranteed bonus.” 

Unum rejected Stephan’s appeal, maintaining “that the

original basic monthly earnings calculation was correct.” The

letter from Unum rejecting Stephan’s appeal observed:

As Mr. Stephan began working in April and stopped

working in August he did not work a full 12 months

and it is apparent that TWP went outside their own

employment agreement when [Stephan] received a

bonus in December 2007. This is consistent with the

information provided in a December 14, 2007 conference call with TWP representatives when they

indicated that they intended to morally honor his

contract.

Further, Unum stated that it did 

not appear [Stephan’s] bonus was a true accrual as

indicated by TWP. If it were truly an accrual, the

bonus would have been paid monthly, which would

have been reflected in [Stephan’s] payroll records.

11084 STEPHAN v. UNUM LIFE INSURANCE
Unum noted that contrary to Stephan’s claim that TWP paid

insurance premiums on a salary of $500,000, Unum’s “premium billing department confirmed that premiums for [Stephan’s disability] coverage were based on earnings of

$100,000; not his salary at the time of disability and not

including any bonus.” Finally, Unum rejected the analysis of

accountant Carol Poulin. Poulin, Unum stated, did “not take

into account the fact that [Stephan’s] bonus [was] contingent

on a level of performance over the 12 months of employment,

which [Stephan] did not complete.” “Accordingly,” Unum

continued, “we have determined that his analysis and conclusions are flawed.”

C. Procedural History

This case was initially filed in the Superior Court of California and then removed by Unum to federal court. The district court resolved it in three stages. 

First, the court ruled on the parties’ cross-motions for summary adjudication regarding the standard of review to be

applied to the case. Because the Plan contained a provision

delegating discretionary authority over its interpretation to

Unum, the court held that the proper standard of review was

abuse of discretion. The court rejected Stephan’s contention

that the discretionary provision was void either because of a

settlement agreement between Unum and the State of California or because it was in violation of California public policy.

In addition, the district court’s initial decision held that,

absent attorney-client privilege, certain memoranda between

Unum’s in-house counsel and the claims analyst responsible

for Stephan’s claim were discoverable, because they might

help demonstrate whether and to what extent Unum was operating under a conflict of interest. The court withheld any

determination, however, on whether the attorney-client privilege protects these documents pending briefing on the appliSTEPHAN v. UNUM LIFE INSURANCE 11085
cability to the documents of the fiduciary exception to

attorney-client privilege.

Second, after the parties briefed the issue, the district court

ruled on the discoverability of these memoranda. Although

the court assumed without deciding that the fiduciary exception to attorney-client privilege generally applies to whollyinsured ERISA plans such as TWP’s, it held that the exception did not apply in this case, because “the interests of plaintiff and defendant had sufficiently diverged at the time the

disputed memoranda were created.” Therefore, it held, Unum

need not produce the documents.

Finally, on cross-motions for summary judgment on the

merits, the district court ruled that “Unum’s conflict of interest did not weigh heavily upon its decision-making process in

this case,” and more generally, that Unum had not abused its

discretion in excluding Stephan’s bonus from its calculation

of the monthly earnings upon which it based its disability payments. The court therefore granted Unum’s motion for summary judgment, and denied Stephan’s. This appeal followed.

II. STANDARD OF REVIEW

ERISA benefit determinations are reviewed de novo, unless

the benefit plan provides otherwise. Glenn, 554 U.S. at 111.

“Where the plan . . . grant[s] the administrator or fiduciary

discretionary authority to determine eligibility for benefits,

trust principles make a deferential standard of review appropriate.” Id. (internal quotation marks, citations, and alteration

omitted). 

The benefit plan in this case delegates discretionary authority to Unum.1

 Stephan contends, however, that, for two rea1The plan states “Thomas Weisel Partners LLC is the Plan Administrator and named fiduciary of the Plan, with authority to delegate its duties.”

It further provides: 

11086 STEPHAN v. UNUM LIFE INSURANCE
sons, the Plan’s discretionary authority provisions must be

disregarded and Unum’s benefits determination reviewed de

novo. First, Stephan maintains that the California Settlement

Agreement, an agreement between Unum and the California

Department of Insurance, prohibits the discretionary authority

provision. Second, he argues the discretionary provision is

contrary to California state law and therefore void. Both arguments fail.

A. Background

Cal. Ins. Code § 10291.5(b) provides that the California

Insurance Commissioner “shall not approve any disability

policy for insurance or delivery in” California that does not

meet certain requirements. In particular, § 10291.5(b)(1) prohibits the Commissioner from approving a policy 

[i]f the commissioner finds that it contains any provision, or has any label, description of its contents,

title, heading, backing, or other indication of its provisions which is unintelligible, uncertain, ambiguous, or abstruse, or likely to mislead a person to

whom the policy is offered, delivered or issued.

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. 

(emphasis added). In addition, the certificate of coverage states “[w]hen

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.” 

STEPHAN v. UNUM LIFE INSURANCE 11087
The Insurance Code provides not only that the Commissioner

may deny approval to policies that do not meet this standard,

but also that

[t]he commissioner may withdraw approval of filing

of any policy or other document or matter required

to be approved by the commissioner, or filed with

him or her, by this chapter when the commissioner

would be authorized to disapprove or refuse filing of

the same if originally submitted at the time of the

action of withdrawal. 

Id. § 10291.5(f). Finally, the Code states that any insurance

policy issued 

on a form approved by the commissioner, and in

accordance with the conditions, if any, contained in

the approval, at a time when that approval is outstanding shall, as between the insurer and the

insured, or any person claiming under the policy, be

conclusively presumed to comply with, and conform

to, this section.

Id. § 10291.5(k).

On February 27, 2004, the Commissioner issued a notice

that it intended to withdraw approval of several insurance

forms, including the form upon which TWP’s long-term disability policy was written, because they contained discretionary authority provisions. Such provisions, the Commissioner

explained, “render [a policy] ‘fraudulent or unsound insurance’ within the meaning of [California] Insurance Code

§ 10291.5” because they make insurance payments “contingent on the unfettered discretion of the insurer, thereby . . .

rendering the contract potentially illusory.” The notice stated

that the withdrawal of approval would be effective within 91

days unless, within 30 days, an adversely affected insurer

requested a hearing. 

11088 STEPHAN v. UNUM LIFE INSURANCE
Unum requested such a hearing. After the hearing, the

administrative hearing officer issued a proposed decision

upholding the Commissioner’s notice of withdrawal. The

decision stated that the discretionary provisions included in

the policies at issue “create[ ] a legal ambiguity and [are]

likely to mislead the insured,” in violation of Cal. Ins. Code

§ 10291.5. “In eliminating discretionary clauses in disability

insurance policies,” the decision reasoned, “the Commissioner

is fulfilling the statute’s direction that he is to assure that all

insurance policies can be readily understood and interpreted.”

The Commissioner adopted the opinion, stating that it would

take effect on April 22, 2005 “unless the affected insurers

agree in writing before that date to amend all insurance product forms to delete all discretionary clauses or other language

having the same legal effect.”

2

Unum filed a writ of mandate with the San Francisco Superior Court challenging the Commissioner’s notice and his

order adopting the hearing decision. On October 1, 2005,

Unum and the California Department of Insurance reached a

settlement agreement, the California Settlement Agreement

(“CSA”). Pursuant to the CSA, Unum withdrew its writ of

mandate and agreed to make various changes to its insurance

forms.

B. California Settlement Agreement

1.

[1] The CSA requires Unum to 

discontinue use of a[ny] provision that has the effect

of conferring unlimited discretion on [Unum] or

other plan administrator to interpret policy language,

2Unum, as well as another affected insurer, eventually reached agreements with the State of California, and therefore the opinion and its underlying orders were subsequently vacated. 

STEPHAN v. UNUM LIFE INSURANCE 11089
or requires an “abuse of discretion” standard of

review if a lawsuit ensues . . . in any California Contract sold after the date set forth in Section V.

The Agreement defines “California Contract” as “a policy of

disability income insurance . . . which is subject to the jurisdiction of and approved by the Department [of Insurance].”

Section V of the CSA provides that

[a]ny language having the effect of a “discretionary

authority provision” . . . shall not be applied to any

California Contract sold after the CSA Effective

Date [November 1, 2005]. A “discretionary authority

provision” shall not be included in any new policies

issued as California Contracts or included in Summary Plan Descriptions (SPDs) in ERISA-related

Plans generated or issued by the Company, after the

CSA Effective Date so long as its omission from the

policy form or SPD is consistent with what is permitted by applicable California statutory and case

law. Discretionary authority provisions in existing

California Contracts that were issued prior to the

date of the Order of the Commissioner are not

affected by the CSA.

Whereas the CSA provisions relating to discretionary

authority apply to “policies sold after the CSA Effective

Date,” the CSA requires that other changes, such as, for

example, exclusions for pre-existing conditions, “be made in

all new policies” as well as all “in-force policies upon renewal

after the CSA Effective Date.” Thus, by its terms, the CSA

distinguishes between changes, like the prohibition on discretionary authority provisions, that apply only to “new policies,” and those that apply to both “new policies” and

“policies upon renewal.” Both parties interpret the CSA as

providing that policies already extant on the CSA effective

date and renewals of such policies are not subject to the

Agreement’s prohibition on discretionary authority provi11090 STEPHAN v. UNUM LIFE INSURANCE
sions, whereas new policies sold after the CSA Effective Date

are subject to the prohibition.3

Stephan argues that the policy under which he was insured

was a new policy, issued after the CSA Effective Date, and

that therefore its discretionary authority provision is void. We

disagree.

2.

[2] Unum first issued the relevant disability insurance policy to TWP in 1999, years before the effective date of the

CSA. TWP renewed the policy annually. Between 1999 and

2007, the Plan was amended six times. The 2007 amendment

stated that it “form[ed] a part of Group Policy No. 537429

001,” the policy originally issued to TWP in 1999. It also

stated that “[t]he entire policy is replaced by the policy

attached to this amendment.” The attached policy was the

same as the previous version, issued in 2006, with the exception of a few changes to provisions that insurance companies

are explicitly permitted to amend upon renewal without seeking permission of the Commissioner.4

 While the effective date

of the amendment was listed as January 1, 2007, the policy as

a whole retained its original effective date, June 11, 1999. 

[3] Stephan contends that because the 2007 amendment

stated that it “replaced” the previous policy, the 2007 contract

cannot be understood as a renewal but must be viewed as an

entirely new policy. Unum responds that the language does

not indicate an intent to create a new policy, but rather was

3Although the CSA is not entirely clear on this point, we accept the parties’ interpretation for purposes of this appeal. 

4While the district court characterized the 2007 contract as containing

“a few amendments,” Unum states that there was only a single change to

the policy between 2006 and 2007. The record is unclear as to whether

there was a single change or a few changes, but the difference is unimportant. The changes were minimal and permitted under the California Insurance Code. 

STEPHAN v. UNUM LIFE INSURANCE 11091
included simply to avoid confusion: Rather than requiring

policyholders to read both the policy and any amendments,

Unum inserted the amendments into the text of the policy,

such that all policy information was contained in a single document. Reviewing the 2007 contract as a whole, we agree

with Unum’s characterization and hold that the policy under

which Stephan was insured constituted a renewal within the

meaning of the CSA. 

First, as noted, any changes between the 2006 and 2007

policies were minimal and permitted under California law. 

Second, the language of the amendment itself indicates that

the policy to which it is attached is a renewal. The amendment

states that “[t]he policy’s terms and provisions will apply

other than as stated in this amendment.” Were the 2007 policy

entirely new and not a renewal, this language would make little sense, as the reference to “the policy” would have no

meaning. Furthermore, the repeated use of the word “amendment” in the 2007 contract indicates that it did not constitute

a new policy, but rather a continuation of the old policy with

minimal, permitted changes. 

The amendment also states that “[t]his amendment forms a

part of Group Policy No. 537429 001 issued to the Policy

holder: Thomas Weisel Partners LLC,” the policy issued to

TWP in 1999, and that “[t]he effective date of these changes

is January 1, 2007” (emphasis added). This language further

confirms that the 2007 policy was not a renewal by indicating

that while the changes were effective as of January 1, 2007,

the remainder of the policy as a whole retained its original

effective date. Indeed, the effective date of the policy continued to be listed as June 11, 1999. 

The CSA refers to “existing California contracts” as those

“issued prior to the Order of the Commissioner” (emphasis

added). The retention of the 1999 effective date on the

11092 STEPHAN v. UNUM LIFE INSURANCE
amended policy is the strongest indicator that the policy was

issued in 1999, prior to the CSA. 

Overall, then, the language and structure of the 2007 contract, taken together, indicate that the original 1999 policy

remained in effect. In support of his position to the contrary,

Stephan relies on cases holding that “[t]he renewal of a policy

is a new contract of insurance” (citing Borders v. Great Falls

Yosemite Ins. Co., 72 Cal. App. 3d 86, 94 (1977)). But the

cases Stephan cites are context-specific and inapplicable to

the question at issue here. As we noted above, the CSA

explicitly differentiates between new policies and renewals. If

all renewals constituted new policies under the CSA, the

CSA’s differentiation between the two would be meaningless.

Stephan’s reliance on cases where no such distinction was

made is therefore misplaced. 

[4] Because the language and structure of the 2007 policy

clearly indicates that it is a renewal of the existing policy, initially effective June 11, 1999, its discretionary authority provisions are unaffected by the CSA. 

C. California Public Policy

Stephan’s alternative position is that in 2007, the inclusion

of discretionary provisions in insurance polices violated California law and that any such provisions in the Plan are therefore void. This argument is also unavailing.

[5] Under California law, “insurance policies are governed

by the statutory and decisional law in force at the time the

policy is issued. Such provisions are read into each policy

thereunder, and become a part of the contract with full binding effect upon each party.” Interins. Exch. of the Auto. Club

of S. Cal. v. Ohio Cas. Ins. Co., 58 Cal. 2d 142, 148 (1962)

(internal quotation marks omitted). This principle governs not

only new policies but also renewals: Each renewal incorporates any changes in the law that occurred prior to the

STEPHAN v. UNUM LIFE INSURANCE 11093
renewal. See Modglin v. State Farm Mut. Auto. Ins. Co., 273

Cal. App. 2d 693, 700 (1969); Steven Plitt, Daniel Maldonado

& Joshua D. Rogers, Couch on Insurance § 29:43 (3d ed.

2010). So, even though the 2007 policy under which Stephan

was insured was a renewal, it was nevertheless subject to any

relevant California law in place at the time it was issued. The

law in effect at the time of renewal of a policy governs the

policy even if that law is subsequently changed or repealed.

See Interins. Exch. of the Auto. Club, 58 Cal. 2d at 148-49. 

[6] In 2007, there was no California statute explicitly prohibiting discretionary provisions. Stephan relies on Cal. Ins.

Code § 10291.5(b) which provided then (and provides now)

that 

[t]he commissioner shall not approve any disability

policy for insurance or delivery in this state . . . [i]f

the commissioner finds that it contains any provision, or has any label, description of its contents,

title, heading, backing, or other indication of its provisions which is unintelligible, uncertain, ambiguous, or abstruse, or likely to mislead a person to

whom the policy is offered, delivered or issued.

This reliance is misplaced. 

As we explained above, the Commissioner’s notice that he

would withdraw approval from policies containing discretionary clauses, the administrative hearing officer’s proposed

decision approving such notice, and the Commissioner’s order

adopting that decision (together, “the Commissioner’s decision” or “the decision”) held that discretionary clauses create

“uncertainty” about how a policy will be enforced and therefore what entitlements it ultimately guarantees. For that reason, the Commissioner decided such clauses render insurance

policies “misleading and ambiguous” in violation of Cal. Ins.

Code § 10291.5(b)(1). 

11094 STEPHAN v. UNUM LIFE INSURANCE
This decision did not, as Stephan contends, render void all

discretionary provisions contained in policies issued or

renewed after it was made. Section 10291.5(b) does not

directly void any policy or policy provision, even those that

fail to conform with its strictures. Rather, § 10291.5(b) provides the Commissioner grounds for refusing to approve or

withdrawing approval from any non-conforming policy. See

id. § 10291.5(b); id. § 10291.5(f). Specifically, the statute

provides that any policies that are approved by the Commissioner and are “in accordance with the conditions, if any, contained in the approval . . . shall . . . be conclusively presumed

to comply with, and conform to” § 10291.5. Id. § 10291.5(k)

(emphasis added). Thus, “[r]egardless of whether the Insurance Commissioner should have approved the policy, an otherwise valid policy is a binding contract and governs the

obligations of the parties until the Commissioner revokes his

approval.” Peterson v. Am. Life & Health Ins. Co., 48 F.3d

404, 410 (9th Cir. 1995). 

The policy form upon which the Plan was written was

approved by the Department of Insurance in 1991.5 After

Unum and the California Department of Insurance reached a

settlement agreement, the policy form was re-approved, subject to the terms of the CSA. As discussed above, because it

was a renewal, the Plan could contain a discretionary author5Stephan argues that the policy was never approved by the Department

of Insurance. For this proposition, Stephan relies on a letter from the

Department stating that it had no record of approving the form issued to

TWP, although it did have a record “of approving a similar form number.”

Unum submitted to the district court an affidavit from Bonita Williams,

the Unum employee responsible for overseeing the filing and approval of

insurance forms with state departments of insurance. Williams stated that

the relevant form had indeed been approved, and that the Department

could not locate the approval because the policy number had been inadvertently changed. The district court found that the policy form was

approved. This factual finding is not clearly erroneous; we therefore

affirm it. See Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 962 (9th

Cir. 2006) (en banc). 

STEPHAN v. UNUM LIFE INSURANCE 11095
ity provision and remain in compliance with the CSA.

Because the Plan was approved by the Commissioner, under

§ 10291.5(k), it must be “conclusively presumed to comply

with” California law. 

[7] In sum, the Plan’s discretionary authority provision did

not violate the terms of the CSA, nor is the provision void

under California law. We therefore review Unum’s decision

for abuse of discretion. See Glenn, 554 U.S. at 111. 

III. CONFLICT OF INTEREST

As we have explained, because the Plan grants discretionary authority to Unum, we review Unum’s benefits decision

for an abuse of that discretion. See Glenn, 554 U.S. at 111;

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115

(1989); Salomaa v. Honda Long Term Disability Plan, 642

F.3d 666, 673 (9th Cir. 2011). Under this deferential standard,

a plan administrator’s decision “will not be disturbed if reasonable.” Conkright v. Frommert, 130 S. Ct. 1640, 1651

(2010) (internal quotation marks omitted); Salomaa, 642 F.3d

at 675 (internal quotation marks omitted). This reasonableness

standard requires deference to the administrator’s benefits

decision unless it is “(1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in

the record.” Salomaa, 642 F.3d at 676 (internal quotation

marks omitted). 

This abuse of discretion standard, however, is not the end

of the story. Instead, the degree of skepticism with which we

regard a plan administrator’s decision when determining

whether the administrator abused its discretion varies based

upon the extent to which the decision appears to have been

affected by a conflict of interest. Id. 

[8] Under ERISA, Unum has a duty to process claims

“solely in the interests of the [plan’s] participants and beneficiaries.” Glenn, 554 U.S. at 106 (alteration in original) (inter11096 STEPHAN v. UNUM LIFE INSURANCE
nal quotation marks omitted). But because Unum “both

decides who gets benefits and pays for them, . . . it [also] has

a direct financial incentive to deny claims.” Saffon v. Wells

Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 868

(9th Cir. 2008); see also Glenn, 554 U.S. at 105, 114-15; Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 966 (9th Cir.

2006) (en banc). Unum’s dual role as plan administrator,

authorized to determine the amount of benefits owed, and

insurer, responsible for paying such benefits, creates a structural conflict of interest. See Glenn, 554 U.S. at 105, 114-15.

While not altering the standard of review itself, the existence of a conflict of interest is a factor to be considered in

determining whether a plan administrator has abused its discretion. Id. at 108. The weight of this factor depends upon the

likelihood that the conflict impacted the administrator’s decisionmaking. Where, for example, an insurer has “taken active

steps to reduce potential bias and to promote accuracy,” the

conflict may be given minimal weight in reviewing the insurer’s benefits decisions. Id. at 117. In contrast, where “circumstances suggest a higher likelihood that [the conflict] affected

the benefits decision,” the conflict “should prove more important (perhaps of great importance).” Id.

The district court held that “Unum’s conflict of interest did

not weigh heavily upon its decision-making process in this

case and therefore does not tip the scale towards a finding of

an abuse of discretion.” In reaching this conclusion, the district court erred by failing to apply traditional principles of

summary judgment; denying Stephan’s motion to compel discovery of certain internal memoranda between Unum’s claim

analyst and its in-house counsel; and ignoring evidence that

Unum has a history of biased decisionmaking that indicates

that its conflict of interest in this case ought to be given more

weight.

A.

Traditional summary judgment principles have limited

application in ERISA cases governed by the abuse of discreSTEPHAN v. UNUM LIFE INSURANCE 11097
tion standard. Nolan v. Heald College, 551 F.3d 1148, 1154

(9th Cir. 2009). “Where,” as here, “the abuse of discretion

standard applies in an ERISA benefits denial case, a motion

for summary judgment is,” in most respects, “merely the conduit to bring the legal question before the district court and

the usual tests of summary judgment, such as whether a genuine dispute of material fact exists, do not apply.” Id. (internal

quotation marks omitted). 

[9] Consideration of a conflict of interest is, however, an

exception to this feature of ERISA cases as “the traditional

rules of summary judgment” do apply. Id. As to issues regarding the nature and impact of a conflict of interest, summary

judgment may only be granted if after “viewing the evidence

in the light most favorable to the non-moving party, there are

[no] genuine issues of material fact.” Id. (internal quotation

marks omitted). 

[10] Here, there is no indication that the district court

viewed the evidence of bias in the light most favorable to Stephan. Rather, as in Nolan, “without evidentiary hearing or

bench trial, the district court considered and rejected [Stephan’s] bias argument by weighing the documentary evidence

of bias, and ignoring the protections that summary judgment

usually affords the non-moving party.” Id. This was error. 

[11] On remand, the district court may, but need not, hold

a bench trial to determine the impact of Unum’s conflict of

interest. See id. Such a trial would ensure the “full bias inquiry” necessary to determine what weight to give a conflict of

interest. Id. The district court may, however, rule once again

on summary judgment if a renewed motion is made. But it

must do so in accordance with the traditional summary judgment principles. 

In particular, it should, where relevant, permit the admission of evidence outside the administrative record. Although,

for the most part, judicial review of benefits determinations is

11098 STEPHAN v. UNUM LIFE INSURANCE
“limited to the administrative record” — that is, the record

upon which the plan administrator relied in making its benefits decision — the evaluation of a conflict of interest is not

so limited. Id. Evidence outside the administrative record is

“properly considered” in determining the extent to which a

conflict of interest affected an administrator’s decision. Id.

Here, as explained further below, the district court should

consider any relevant evidence about Unum’s history of

biased decisionmaking; any evidence that its decisionmaking

was biased in this case, including the internal memoranda

between Stephan’s claim analyst and its in-house counsel; as

well as any evidence that Unum took steps to reduce the

potential impact of a conflict of interest, either in general or

in this case. And, if considered on summary judgment, the

district court should view the evidence in the light most favorable to the non-moving party. Id.

B.

In an effort to demonstrate to the district court that Unum

operated under a conflict of interest, Stephan sought to discover a series of internal memoranda created between December 2007 and February 2008 by Unum’s in-house counsel, at

the request of Unum’s claims analyst. Stephan argues that

although ordinarily such memoranda would fall under the

attorney-client privilege, Unum is a fiduciary of TWP’s

ERISA plan, and therefore the fiduciary exception to the privilege permits his discovery of the memoranda. 

The district court assumed without deciding that the fiduciary exception applied to wholly-insured ERISA plans like

TWP’s. But it held that the exception did not apply in this

case because “the interests of plaintiff and defendant had sufficiently diverged at the time the disputed memoranda were

created.” We agree that the fiduciary exception applies to

wholly-insured ERISA plans but disagree with the district

court’s holding that it is inapplicable here.

STEPHAN v. UNUM LIFE INSURANCE 11099
1.

[12] “As applied in the ERISA context, the fiduciary

exception provides that an employer acting in the capacity of

ERISA fiduciary is disabled from asserting the attorney-client

privilege against plan beneficiaries on matters of plan administration.” United States v. Mett, 178 F.3d 1058, 1063 (9th

Cir. 1999) (internal quotation marks omitted). Although the

Ninth Circuit has held that the fiduciary exception applies

generally in the ERISA context, see id. at 1062-63, whether

it applies to insurance companies in particular is a question of

first impression in this Circuit.6

The justifications for excepting ERISA fiduciaries from

attorney-client privilege apply equally to insurance companies. In particular, courts have cited two rationales for applying an exception to the attorney-client privilege to ERISA

fiduciaries: “[S]ome courts have held that the exception

derives from an ERISA trustee’s duty to disclose to plan beneficiaries all information regarding plan administration.” Mett,

178 F.3d at 1063. On this view, the attorney-client privilege

is subordinated to the fiduciary’s disclosure obligation. See id.

(citing In re Long Island Lighting Co., 129 F.3d 268, 271-72

(2d Cir. 1997)). 

“Other courts have” reasoned that because the ERISA fidu6Although there is no Ninth Circuit precedent on this question, several

other courts have considered it. The Third Circuit, the only Court of

Appeals to address the issue, held that the fiduciary exception was inapplicable to insurance companies. See Wachtel v. Health Net, Inc., 482 F.3d

225 (3d Cir. 2007). Every district court that has considered the question

since, however, has rejected Wachtel’s approach and held that the fiduciary exemption does apply to insurance companies. See, e.g., Klein v. Nw.

Mutual Life Ins. Co., 806 F. Supp. 2d 1120 (S.D. Cal. 2011); Buzzanga v.

Cigna, No. 4:09-CV-1353, 2010 WL 1292162 (E.D. Mo. Apr. 5, 2010);

Smith v. Jefferson Pilot Fin. Ins. Co., 245 F.R.D. 45 (D. Mass. 2007). For

the reasons we explain below, we agree with the rationale of these courts

and reject the Third Circuit’s conclusion. 

11100 STEPHAN v. UNUM LIFE INSURANCE
ciary is “a representative for the beneficiaries of the trust

which he is administering,” it is not the fiduciary, but rather

the plan beneficiary that is the “real client.” Mett, 178 F.3d at

1063 (internal quotation marks omitted). On this view, the

fiduciary exception is not really an exception at all. Attorneyclient privilege is maintained; there is only a different understanding of the identity of the client. Id.

[13] Neither of these theories provides any basis for distinguishing ERISA trustees, to whom the Ninth Circuit has

already extended the fiduciary exception, from insurance

companies also serving in the role of ERISA fiduciary. The

duty of an ERISA fiduciary to disclose all information regarding plan administration applies equally to insurance companies as to trustees.

ERISA has broad disclosure requirements: It requires that

“every employee benefit plan . . . afford a reasonable opportunity to any participant whose claim for benefits has been

denied for a full and fair review by the appropriate named

fiduciary of the decision denying the claim.” 29 U.S.C.

§ 1133. Because “[t]he opportunity to review . . . pertinent

documents is critical to a full and fair review,” Ellis v. Metropolitan Life Insurance Co., 126 F.3d 228, 237 (4th Cir. 1997),

the regulations implementing this provision require that upon

request, a claimant be provided all “information relevant to

the claimant’s claim for benefits,” 29 C.F.R. § 2560.503-

1(h)(2)(ii). Neither the statute nor the regulations provide any

reason why the disclosure of information is any less important

where an insurer, rather than a trustee or other ERISA fiduciary, is the decisionmaker. 

Similarly, the obligation that an ERISA fiduciary act in the

interest of the plan beneficiary does not differ depending on

whether that fiduciary is a trustee or an insurer. There is therefore no principled basis for excluding insurers from the fiduciary exception.

STEPHAN v. UNUM LIFE INSURANCE 11101
2.

The district court held that even if the fiduciary exception

applies to wholly-insured ERISA plans, the particular documents requested by Stephan do not fall within this exception

because they “were created after [Stephan’s] counsel contacted Unum and an adversarial relationship had begun.”

After reviewing these documents in camera, we disagree. 

“The fiduciary exception has its limits — by agreeing to

serve as a fiduciary, an ERISA trustee is not completely debilitated from enjoying a confidential attorney-client relationship.” Mett, 178 F.3d at 1063. Mett addressed these limits,

considering whether the fiduciary exception applied to two

memoranda written by a law firm that “wore many hats, serving at various times as counsel to [two ERISA trustees] personally and in their capacities as ERISA plan trustees, to [a

corporation] as a corporation and in its role as plan administrator, and to the ERISA plans themselves.” Id. at 1062. The

memoranda were written to the trustees and “relate[d] to the

potential civil and criminal consequences” the trustees might

face due to illegal actions they had taken in administering an

ERISA plan. Id. 

In analyzing whether the documents fell within the fiduciary exception, Mett explained:

[T]he case authorities mark out two ends of a spectrum. On the one hand, where an ERISA trustee

seeks an attorney’s advice on a matter of plan

administration and where the advice clearly does not

implicate the trustee in any personal capacity, the

trustee cannot invoke the attorney-client privilege

against the plan beneficiaries. On the other hand,

where a plan fiduciary retains counsel in order to

defend herself against the plan beneficiaries (or the

government acting in their stead), the attorney-client

privilege remains intact.

11102 STEPHAN v. UNUM LIFE INSURANCE
Id. at 1064. The memoranda at issue in Mett, we held, fell

within the latter category. They were not rendering advice “on

a matter of plan administration,” but “were plainly defensive

on the trustees’ part and aimed at advising the trustees how

far they were in peril.” Id. (internal citations and quotation

marks omitted). 

Here, the documents sought fall on the other end of the

Mett spectrum. The documents at issue are notes of conversations between Unum claims analysts and Unum’s in-house

counsel about how the insurance policy under which Stephan

was covered ought to be interpreted and whether Stephan’s

bonus ought to be considered monthly earnings within the

meaning of the Plan. Unlike the memoranda in Mett, the disputed documents offer advice solely on how the Plan ought to

be interpreted. They do not address any potential civil or

criminal liability Unum might face, nor is there any indication

that they were prepared with such liability in mind. 

Unum argues that, nevertheless, the fiduciary exception

ought not apply to the documents because of the context in

which they were created. The memoranda, Unum contends,

“were all created after Unum had received correspondence

from Stephan’s counsel,” and therefore after there was “an

indication that the parties may become adverse.” There is no

binding precedent in this circuit delineating precisely when

the interests of a Plan fiduciary and its beneficiary become

sufficiently adverse that the fiduciary exception no longer

applies. Courts that have considered the issue, however, “have

repeatedly rejected the argument that the prospect of postdecisional litigation is enough to overcome the fiduciary

exception.” Allen v. Honeywell Ret. Earnings Plan, 698 F.

Supp. 2d 1197, 1201 (D. Ariz. 2010) (internal quotation

marks omitted); see, e.g., Geissal v. Moore Med. Corp., 192

F.R.D. 620, 625 (E.D. Mo. 2000); Klein, 806 F. Supp. 2d at

1132-33 (collecting cases). Most courts have held that it is not

until after the final determination — that is, after the final

administrative appeal — that the interests of the Plan fiduSTEPHAN v. UNUM LIFE INSURANCE 11103
ciary and the beneficiary diverge for purposes of application

of the fiduciary exception. See Klein, 806 F. Supp. 2d at 1132.

We agree with the weight of authority. The context of the

documents at issue here — communications in advance of

Unum’s decision on Stephan’s appeal — indicates that their

goal was the determination of Stephan’s pre-disability earnings, a matter of plan administration, and was not preparation

for litigation. 

[14] The content of the documents confirms this conclusion. Whereas the Mett memoranda were prepared to advise

ERISA trustees “regarding their own personal civil and criminal exposure in light of undocumented withdrawals that had

already occurred,” Mett, 178 F.3d at 1064, the documents

here were prepared to advise Unum claims analysts about

how best to interpret the Plan, and were communicated to the

analysts before any final determination on Stephan’s claim

had been made. The content of the documents was thus about

plan administration, a topic to which, under Mett, the fiduciary exception applies. 

[15] In sum, advice on the amount of benefits Stephan was

owed under the Plan, given before Unum had made any final

determination on his claim, constitutes advice on plan administration. Such advice was given before the interests of Stephan and Unum became adverse. The fiduciary exception to

the attorney-client privilege therefore applies to the documents at issue here. Absent some other basis for withholding

them, the district court, on remand, should permit discovery

of the documents.

C.

[16] The Supreme Court instructed in Glenn that a “conflict of interest . . . should prove more important (perhaps of

great importance) . . . where an insurance company administrator has a history of biased claims administration.” Glenn,

554 U.S. at 117. In so stating, Glenn cited a law review article

11104 STEPHAN v. UNUM LIFE INSURANCE
“detailing such a history for one large insurer.” Id. (citing

John H. Langbein, Trust Law as Regulatory Law: The Unum/

Provident Scandal and Judicial Review of Benefit Denials

Under ERISA, 101 Nw. U. L. Rev. 1315, 1317-21 (2007)).

That insurer was Unum. Id.

[17] Numerous courts, including ours, have commented on

Unum’s history “ ‘of erroneous and arbitrary benefits denials,

bad faith contract misinterpretations, and other unscrupulous

tactics,’ ” McCauley v. First Unum Life Ins. Co., 551 F.3d

126, 137 (2d Cir. 2008) (quoting Radford Trust v. First Unum

Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004), rev’d

on other grounds, 491 F.3d 21, 25 (1st Cir. 2007)). Indeed, in

Saffon, we attributed the trend of state prohibitions on discretionary provisions in insurance contracts to “the cupidity of

one particular insurer, Unum-Provident Corp., which boosted

its profits by repeatedly denying benefits claims it knew to be

valid. Unum-Provident’s internal memos revealed that the

company’s senior officers relied on ERISA’s deferential standard of review to avoid detection and liability.” 522 F.3d at

867; see also Radford Trust, 321 F. Supp. 2d at 247 n.20 (collecting cases). Moreover, the CSA notes that Unum was subject to “a multistate targeted examination” of its “claims

handling practices,” which resulted in a settlement agreement

similar to the CSA. And the CSA was the product of investigations by the State of California into Unum’s claims handling practices. 

The district court held that Stephan had not “demonstrated

‘a history of biased claims administration.’ ” Given the public

record and the record in this case, that conclusion is incorrect.

Furthermore, Unum did not present any evidence indicating

that it made any effort to mitigate its conflict of interest.

Unum “was not required to present evidence demonstrating

its efforts to achieve claims administration neutrality.” Montour, 588 F.3d at 634. But “the Supreme Court’s decision in

[Glenn] placed it on notice as to the potential significance of

STEPHAN v. UNUM LIFE INSURANCE 11105
such evidence in defense of a suit by a claimant challenging

an adverse benefits determination.” Id. Glenn explained that

a conflict of interest would

prove less important (perhaps to the vanishing point)

where the administrator has taken active steps to

reduce potential bias and to promote accuracy, for

example, by walling off claims administrators from

those interested in firm finances, or by imposing

management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy

benefits.

554 U.S. at 117. So far, Unum has presented no such evidence. 

[18] In reconsidering the weight to accord to Unum’s conflict of interest, the district court should take into account the

public record of Unum’s history of biased decisionmaking as

well as any evidence of such history Stephan produces. In

addition, it should allow Unum the opportunity to demonstrate that, before making the decision on Stephan’s claim, it

implemented procedures to mitigate possible bias.

D.

As we have explained, on remand, the district court should

reconsider what weight to give Unum’s conflict of interest in

its analysis of whether Unum abused its discretion. In particular, the court must determine whether the “conflict may have

tainted the entire administrative decisionmaking process” and

therefore the “stated bases for [Unum’s] decision” ought to be

reviewed “with enhanced skepticism.” Montour, 588 F.3d at

631. Although we express no opinion on the ultimate outcome

of this inquiry, we note that there are several aspects of

Unum’s decision that might well indicate that “bias infiltrated

the entire decisionmaking process.” Id. at 634.

11106 STEPHAN v. UNUM LIFE INSURANCE
1.

First, Unum’s interpretation of the language of the Plan

rests on terms that do not appear in the relevant text. The Plan

entitled Stephan to sixty percent of his monthly earnings up

to a maximum of $20,000. It specified that

“Monthly Earnings” means your average gross

monthly income as figured: 

a. from the income box on your W-2 form

which reflects wages, tips and other compensation received from your Employer for

the two (2) calendar-years just prior to your

date of disability; or

b. for the period of your employment with

your Employer if you have been employed

less than two (2) full calendar years prior to

your date of disability.

Average gross monthly income is your total income

before taxes. It is prior to any deductions made for

pre-tax contributions to a qualified deferred compensation plan, Section 125 plan, or flexible spending

account. It does not include income received from

car, housing or moving allowances, Employer contributions to a qualified deferred compensation plan, or

income received from sources other than your

Employer. 

As Stephan worked for less than a year before becoming disabled, his Plan benefit was to be calculated based on his “average gross monthly income . . . for the period of [his]

employment” at TWP. 

As noted above, in the letter offering Stephan employment,

TWP provided:

STEPHAN v. UNUM LIFE INSURANCE 11107
Your salary rate will be $200,000 annually. . . . You

will be eligible to participate in Thomas Weisel Partners’ discretionary bonus program. Although

bonuses are generally discretionary, you will be

guaranteed [a] $300,000 bonus for your first 12

months of employment, provided you perform at the

level both you and we anticipate and that you have

not voluntarily terminated your employment or been

terminated for cause prior to the relevant payment

dates.

The Plan is silent as to whether and how such a bonus ought

to be included in Stephan’s gross monthly earnings if he is

disabled before the bonus is received.7

Unum insists that the “monthly earnings” upon which disability benefits are based must be limited to “earnings

received up to the date of disability.” But the language limiting earnings to income already “received” appears in section

(a) of the definition, applicable after two years of employment, not in section (b), which applies to employees disabled

after fewer than two years of work. As Stephan had worked

for less than a year before becoming disabled, it is section (b)

that applies to him. Section (b) contains no reference to when

income is received. Unum’s reliance on the term “received”

to interpret section (b) is therefore misplaced.

Furthermore, Unum’s interpretation would make arbitrary

distinctions based on an insured’s length of employment, dis7Citing Arnold v. Unum Life Insurance Co. of America, 726 F. Supp. 2d

1063 (N.D. Cal. 2009), Stephan notes that other insurance plans issued by

Unum explicitly excluded bonuses from the definition of monthly earnings, and argues therefore that Unum’s failure to do so here indicates that

they are included. However, Unum also issued plans that explicitly

included bonuses in the definition of monthly earnings. See Hemenway v.

Unum Life Ins. Co. of Am., 89 F. App’x 630, 631 (9th Cir. 2004). We

therefore cannot draw any inference from the Plan’s silence on how

bonuses ought to be treated. 

11108 STEPHAN v. UNUM LIFE INSURANCE
tinctions not supported by the text of the Plan. For example,

if Stephan had become disabled the day he received his

bonus, it would be included in the earnings upon which

Unum’s disability payments were based. But if he had

become disabled one day before his first bonus was received,

it would not be so included, even if he had worked for twelve

months at an adequate level and his bonus was, therefore,

guaranteed. 

In addition, the Plan’s definitions of “monthly earnings”

and “gross monthly income” are the same — “total income

before taxes” — regardless of how long an insured has been

employed. Such earnings are not defined differently based on

length of employment, but merely “figured” differently

(emphasis added). On Unum’s interpretation, however, for

those employees who have received their bonuses, “total

income” would include salary and bonuses. For those whose

bonuses are guaranteed but have yet to be paid, such income

would include salary only. This result is at odds with the policy’s language, which defines monthly earnings without regard

to length of employment. 

Finally, interpreting “gross monthly income” to include

only income actually received would mean that employees

who became disabled before receiving their first paycheck

would receive no disability payments at all. Similarly, the disability payments for an employee whose paycheck was incorrect — for example someone who had been accidentally

underpaid due to a payroll error or intentionally underpaid

due to discrimination — would be calculated based on this

erroneous figure.

The district court “expresse[d] no opinion on these matters,

and limit[ed] its holding to the facts of this action.” But the

Plan applies to all TWP employees, not merely Stephan, and

Unum is required by law to ensure that “the plan provisions”

are “applied consistently with respect to similarly situated

claimants.” 29 C.F.R. § 2560.503-1(b)(5). Unum’s interpretaSTEPHAN v. UNUM LIFE INSURANCE 11109
tion of the Plan as limiting monthly earnings to income actually received either disregards this obligation or reaches an

unsupportable result.

2.

Similarly, Unum relies on a questionable interpretation of

Stephan’s offer letter. As noted above, Stephan’s offer letter

provided that his compensation included a “guaranteed

$300,000 bonus for [his] first twelve months of employment”

(emphasis added). Stephan’s bonus was thus a nondiscretionary part of his income, so long as he met the conditions of the

offer letter. The letter required only that Stephan “perform at

the level both [he and TWP] anticipate[d] and that [Stephan]

not voluntarily terminate[ ] [his] employment or be[ ] terminated for cause prior to the relevant payment dates.” 

Unum decided that because Stephan “did not work a full 12

months . . . it is apparent that TWP went outside their own

employment agreement when [Stephan] received a bonus in

December 2007.” Such a conclusion is far from clear from the

language of the offer letter. 

Stephan was certainly not “terminated for cause.” Nor is it

sensible to understand his inability to work due to disability

as a voluntary termination of employment. And although the

bonus was contingent on Stephan maintaining a particular

level of performance in his first twelve months, the letter does

not specify that level. Nor is there any indication that Stephan

fell below any requisite performance standard. Finally, the letter does not indicate that periods of disability cannot count

toward the requisite period of employment. 

Moreover, the central question at issue in this case is not

whether Stephan was entitled to receive his bonus in its

entirety, but whether he earned it on a pro rata basis each

month as part of his income. Unum’s interpretation of the

offer letter does not answer that question. In relying on Ste11110 STEPHAN v. UNUM LIFE INSURANCE
phan’s offer letter, Unum thus relied on a contractual interpretation that is, at best, only weakly supported by the

contractual language. 

3.

In support of its decision, Unum repeatedly cited a telephone call during which TWP General Counsel Mark Fisher

stated that TWP intended to “morally honor” Stephan’s contract by paying him his annual bonus even though he had not

yet worked twelve months. Unum argues that this statement

indicates that TWP did not consider the bonus a portion of

Stephan’s income it was contractually obligated to pay;

instead, Unum contends, TWP gave Stephan $300,000, none

of which he was actually owed, out of sympathy for his situation. 

Unum took this quotation out of context and then proceeded to give it undue weight in its determination of Stephan’s pre-disability earnings. The text of the notes from

which the quotation was drawn states more completely:

Received a call from [TWP] . . . . They are going to

continue payment and honor their contract with the

claimant and continue his salary along with the

bonus payment and they want a statement in writing

that this wil[l] [n]ot affect the LTD bens [long-term

disability benefits] and we will not consider this an

offset to his earnings. He says as their company is

set up and the way most wall street corps are the

main income ee’s [employees] receive is from bonus

and the base salary is a set amount. They want a

statement that continued payment of his contract

they are going to morally honor will be treated as

s[al]ary cont[inuation] and not affect his benefits.

(emphasis added). In contrast to Unum’s implication, this

conversation demonstrates that TWP understood Stephan’s

STEPHAN v. UNUM LIFE INSURANCE 11111
bonus not as a discretionary addition to his income, but rather

as an integral — in fact, the “main” — part of his payment

for each month’s work, despite the fact that it was not to be

received until later. TWP’s counsel therefore most probably

meant not that it was giving Stephan his bonus to be charitable, but rather that it considered the bonus an essential part of

Stephan’s salary. 

Other evidence in the record confirms that TWP understood

Stephan’s bonus as part of his monthly earnings, and therefore

as earnings upon which disability payments ought to be calculated. For example, the claim form TWP submitted for Stephan listed as his “Salary/Wage prior to date last worked,” a

semi-monthly salary of $8,333.33 as well as a bonus of

“$300,000 (for 2007).” And in the same conversation upon

which Unum relies to support its earnings determination,

TWP “also stated that they have an issue with the monthly

earnings and the amount of ben[efit]s [Unum] will be paying.” 

Given the strong support in the record for the conclusion

that TWP believed Unum’s bonus to be part of his monthly

earnings, Unum’s reliance on TWP’s statement that it would

“morally honor” Stephan’s contract as implying that TWP did

not understand the bonus as part of Stephan’s monthly income

is “without support in inferences that may be drawn from the

facts in the record,” Salomaa, 642 F.3d at 676, and may indicate bias.

4.

In addition to mischaracterizing TWP’s understanding of

Stephan’s bonus, Unum ultimately disregarded TWP’s conclusion that the bonus ought to be included in the calculation

of Stephan’s pre-disability earnings. Unum also rejected the

views of Carol Poulin, a Certified Public Accountant, who in

his former positions as Manager and then Director of Financial Assessment at Unum, 

11112 STEPHAN v. UNUM LIFE INSURANCE
was closely involved in developing the LTD [longterm disability] contract language for Basic Monthly

Earnings definitions for the new LTD contract developed by UNUM in the 1990s — the same contract

that Mr. Stephan [was] . . . covered under.

Relying on several documents related to Stephan’s claim,8

Poulin concluded that “Mr. Stephan’s monthly income consists of both his pro-rated salary and pro-rated guaranteed

bonus.” 

Unum rejected Poulin’s conclusion because it did “not take

into account the fact that the bonus is contingent on a level of

performance over the first 12 months of employment, which

[Stephan] did not complete.” However, Poulin’s report states

that he reviewed Stephan’s offer letter. Furthermore, as we

have explained, Unum misreads the offer letter as specifying

that the bonus was not part of Stephan’s earnings. 

Unum’s failure to give any weight to Poulin’s analysis and

its distortion of TWP’s views indicate that it failed to take

into account relevant evidence, supporting the conclusion that

its decisionmaking was affected by a conflict of interest.

5.

Unum repeatedly cited the premiums paid for Stephan as

evidence that Stephan’s bonus ought not be included as gross

monthly earnings. The record makes clear, however, that

Unum either did not in fact rely on the premiums or did so in

a way that was illogical. In either case, Unum’s citation of

premium payments supports an inference of bias. 

8Poulin reviewed Stephan’s earnings statements, his 2007 W-2 form,

memoranda from TWP to Stephan’s attorney, Stephan’s disability application, Stephan’s employment offer letter, Unum plan documents, TWP’s

premium statement from Unum, and letters from Unum regarding Stephan’s claim. 

STEPHAN v. UNUM LIFE INSURANCE 11113
Because of what seems to have been a recordkeeping error,

Unum believed for most of the benefits determination process

that TWP had paid premiums for Stephan corresponding to an

annual income of only $100,000. While still under the impression that TWP paid premiums based on a salary of $100,000,

Unum found that Stephan was owed disability payments

based on an annual salary of $200,000. Thus, Unum could not

have initially relied on the premiums paid by TWP to determine Stephan’s pre-disability earnings. 

Nevertheless, once Unum confirmed that TWP paid premiums for Stephan based on a salary of $200,000, it began to

justify its decision with reference to these premiums. This

“shifting and inconsistent” reliance on premiums raises the

possibility that Unum’s decision was affected by its conflict

of interest. See Salomaa, 642 F.3d at 678. 

Furthermore, there is conflicting evidence in the record

about how TWP paid its premiums and, therefore, to what

extent the premiums accurately reflected the earnings of TWP

employees. Unum’s own review of TWP’s premium payments was inconclusive, finding that there was not “sufficient

information to be able to clearly determine if the earnings figures [on which premiums were paid] . . . are salary only or

some combination of salary and bonus.” Indeed, with respect

to TWP’s premiums, the only thing clear from the record is

that they were not a reliable source of evidence of employees’

actual earnings. The record notes, for example, “a significant

adjustment [in premiums] in April of 2006, which does not

appear to correspond to a significant increase in policy lives

covered but may reflect an attempt to correct a historical

underpayment of premiums” — that is, an adjustment of premiums entirely unrelated to the earnings of TWP employees.

Thus, Unum’s reliance on TWP’s premium payments was

both inconsistent and illogical. That reliance therefore could

be indicative of the impact of Unum’s conflict of interest. See

Salomaa, 642 F.3d at 678.

11114 STEPHAN v. UNUM LIFE INSURANCE
6.

Attached to the letter Stephan sent to Unum appealing its

decision, Stephan provided a letter from TWP stating that

each month, the company recorded a compensation expense

equal to 1/12th of the cash amount of Stephan’s annual bonus.

In its letter rejecting Stephan’s appeal, Unum stated that if

Stephan’s bonus payment truly accrued monthly, it would

have been paid monthly. This assertion is incorrect. Companies that use an accrual method of accounting record expenses

when they are incurred, rather than when they are paid. See,

e.g., Carl S. Warren, James M. Reeve & Jonathan Duchac,

Accounting 104 (24th ed. 2011). Thus, a compensation

expense can be accrued without it having actually been paid.9

That Unum relied on an unsupported assertion contrary to

basic accounting principles is yet another factor relevant to

assessing the degree to which Unum’s structural conflict of

interest may have affected its benefits decision.

IV. CONCLUSION

[19] We affirm the district court’s ruling that the proper

standard of review is abuse of discretion. We reverse, however, the district court’s grant of summary judgment to Unum.

We remand the case to the district court for reconsideration of

the weight Unum’s conflict of interest ought to be accorded

in determining whether Unum abused its discretion. On

9Moreover, it is standard accounting practice to estimate the amount of

yearly bonuses that will be paid and record monthly a pro-rated amount

attributed to each month. See Steven M. Bragg, The Ultimate Accountants’

Reference 207 (3d ed. 2010). This is so even when the payment or amount

of the bonus is uncertain and dependent — such as, for example, a bonus

tied to sales benchmarks — so long as the bonus can be estimated with

reasonable confidence. See id. It is therefore difficult to draw any conclusions from TWP’s monthly recording of a pro-rated share of Stephan’s

bonus. But this difficulty is not for the reason stated by Unum — that an

expense is only truly accrued if it is paid out. 

STEPHAN v. UNUM LIFE INSURANCE 11115
remand, the district court may, but need not, determine that

additional discovery; an evidentiary hearing; and/or a bench

trial is required. We leave it to the district court in the first

instance to determine the procedures best suited to evaluating

fully Unum’s conflict of interest. Having reconsidered the

nature and impact of Unum’s conflict of interest — including

any evidence that the conflict led Unum to render an interpretation of the policy that is unsupported by the record — the

district court should re-weigh the relevant evidence and determine whether Unum abused its discretion in failing to include

Stephan’s bonus in its pre-disability earnings calculation.

AFFIRMED IN PART, REVERSED AND

REMANDED IN PART. Each party shall bear its own costs

on appeal. 

O’SCANNLAIN, Circuit Judge, dissenting:

I agree with the majority that we evaluate Unum Life Insurance Company’s interpretation of plan terms under an abuse

of discretion standard. I cannot agree, however, that remand

is appropriate. The district court did not, as the majority contends, improperly weigh evidence at the summary judgment

stage. And Unum’s interpretation of the plan—which is silent

on whether a bonus should be counted as monthly income—

is reasonable and supported by the record. I would therefore

affirm the grant of summary judgment in favor of Unum.

I

The majority holds that the district court “failed to apply

the traditional rules of summary judgment to its analysis of

whether and to what extent a conflict of interest impacted

Unum’s benefits determination.” Op. at 11082. I disagree.

The district court properly considered the evidence before it.

Stephan presented no specific evidence of bias; the exhibits

11116 STEPHAN v. UNUM LIFE INSURANCE
he filed included correspondence with Unum, an expert

report, and Unum’s notes from Stephan’s claim folder, all of

which showed consistent handling of Stephan’s claim.1 The

district court considered all of Stephan’s evidence, as well as

hundreds of pages of evidence submitted by Unum, before

concluding that “Unum’s conflict of interest did not weigh

heavily upon its decision-making process in this case.” 

Lacking support for its assertion that the district court

improperly weighed the evidence before it, the majority

directs the district court on remand to “permit the admission

of evidence outside the administrative record” to evaluate

bias. Op. at 11098. This is not our law. A district court is not

required to consider evidence outside the record. Rather,

when evaluating the “nature, extent, and effect on the

decision-making process of any conflict of interest,” the district court “may, in its discretion, consider evidence outside

the administrative record.” Abatie v. Alta Health Ins. Co., 458

F.3d 955, 970 (9th Cir. 2006) (en banc) (emphasis added);

Nolan v. Heald College, 551 F.3d 1148, 1150 (9th Cir. 2009)

(explaining that Abatie “permit[s]” plaintiffs to submit evidence outside the administrative record). We therefore cannot,

as the majority suggests, require the district court to conduct

an independent assessment of bias beyond the evidence presented by the parties. See op. at 11098-99.

Remand thus serves only to provide Stephan a second

opportunity to litigate his case. That is not appropriate here.

1While I agree with the majority that the district court erred in denying

Stephan’s motion to compel certain discovery, having reviewed these documents in camera, they would not help Stephan’s case. Such an error, in

light of the other evidence, does not require remand. See Kaiser Found.

Health Plan, Inc. v. Abbot Labs., Inc., 552 F.3d 1033, 1042 (9th Cir. 2009)

(explaining that erroneous evidentiary rulings require reversal only where

they are prejudicial). 

STEPHAN v. UNUM LIFE INSURANCE 11117
II

A

Nevertheless, the majority decides to remand. Having so

decided, the majority’s opinion should be at an end. But it is

not. While purporting to “express no opinion” on whether

Unum’s interpretation of the plan should be found unreasonable, Op. at 11106, the majority expansively opines on the

correct outcome of the district court’s inquiry, see op. at

11106-15. In doing so, the majority mischaracterizes the

record and traverses well outside the bounds of our deferential

review. What is more, the majority’s extensive dicta, see op.

at 11106-15—which, in any event, does not bind the district

court—relies on inconclusive evidence and concludes that,

because it would have interpreted that evidence differently,

Unum’s interpretation is unreasonable. See op. at 11111-14.

This is not abuse of discretion review. 

To take one example: the majority unfairly criticizes

Unum’s reliance on TWP’s statement that it would “morally

honor” its employment contract and posits that TWP “most

probably meant” that TWP viewed the bonus as a necessary

component of Stephan’s salary. Op. at 11112. Based on the

record, which consists only of Unum’s own notes of the conversation, the meaning of TWP’s statement is—as the majority itself acknowledges—inconclusive. Likewise, the

majority’s reliance on Stephan’s offer letter is misplaced.

Though the letter indicated that his bonus was “guaranteed,”

it also said that this bonus would be paid to Stephan “provided you perform at the level” TWP anticipated for a twelvemonth period. Yet the majority is confident that Unum “misreads” TWP’s offer letter. Op. at 11113. This dictum should

have been left on the cutting room floor.

B

The evidence demonstrates that Unum’s conclusion that

Stephan’s bonus was not included in the calculation of

11118 STEPHAN v. UNUM LIFE INSURANCE
monthly benefits under the plan is a reasonable one. Unum

consistently explained that it was not including the annual

bonus because that bonus was contingent on Stephan completing a year of satisfactory performance, which he did not do;

because the bonus was not paid on a monthly basis; because

TWP had not paid premiums on the higher amount; and

because it did not find TWP’s expert persuasive. Its interpretation of the plan should not be disturbed. See Conkright v.

Frommert, 130 S. Ct. 1640, 1647, 1651 (2010); Salomaa v.

Honda Long Term Disability Plan, 642 F.3d 666, 676 (9th

Cir. 2011).

We may not substitute our views on how the plan should

be interpreted for those of the plan administrator. The district

court, after considering the evidence Stephan presented, correctly concluded that Unum’s conflict of interest carried little

weight in light of other considerations and that Unum had reasonably interpreted the plan. It should not have to revisit that

determination.

III

It is admittedly difficult to weigh the extent to which a conflict influenced a benefits determination. See Salomaa, 642

F.3d at 675. But “district courts are well equipped to consider

the particulars of a conflict of interest.” Abatie, 458 F.3d at

969. The district court did so correctly in this case, and I

would affirm its grant of summary judgment in favor of

Unum.

I respectfully dissent.

STEPHAN v. UNUM LIFE INSURANCE 11119