In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 04-1653

ANDREW RUTTENBERG, 

Plaintiff-Appellant,

v.

UNITED STATES LIFE INSURANCE

COMPANY IN THE CITY OF NEW YORK,

a subsidiary of American General 

Corporation,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 01 C 8200—Joan Humphrey Lefkow, Judge.

____________

ARGUED NOVEMBER 10, 2004—DECIDED JUNE 30, 2005

____________

Before COFFEY, RIPPLE and SYKES, Circuit Judges.

RIPPLE, Circuit Judge. Andrew Ruttenberg filed a claim for

total disability benefits with his insurer, United States Life

Insurance Company in the City of New York (“U.S. Life” or

the “Company”). After protracted consultations with a

number of physicians and consultants produced no ruling

on the claim, Mr. Ruttenberg filed suit. Originally, he

alleged claims under Illinois law. The parties agreed to a

stay in the proceedings while U.S. Life considered
2 No. 04-1653

Mr. Ruttenberg’s claim. When U.S. Life denied the claim,

the parties returned to the district court. The district court

then determined that Mr. Ruttenberg’s claim was preempted by the Employee Retirement Income Security Act

(“ERISA”), 29 U.S.C. § 1001 et seq. It therefore dismissed the

action with leave to file a claim under that statute. 

After Mr. Ruttenberg filed an ERISA claim, the parties

conducted discovery, and, eventually, each filed motions for

summary judgment. The district court granted U.S. Life’s

motion; it concluded that Mr. Ruttenberg did not qualify for

coverage under the plan because he could not be considered

a full-time employee under its terms. 

Mr. Ruttenberg now appeals both the grant of summary

judgment and the district court’s previous ERISA preemption determination; U.S. Life cross-appeals certain rulings

made by the district court in the course of this litigation. For

the reasons set forth in the following opinion, we reverse the

judgment of the district court and remand this case for

proceedings consistent with this opinion. 

I

BACKGROUND

A. Facts

Mr. Ruttenberg worked as an independent commodity

trader at the Chicago Board of Trade and Mercantile

Exchange (the “exchange”), a position requiring a certain

amount of screaming in order to gain the attention of other

traders on the floor. The exchange floor was open for thirtyfive hours per week. He did not keep regular hours on

trading days. Sometimes, he would work several hours at

the exchange. Other times, he would leave early after

making significant gains or taking losses. He spent time
No. 04-1653 3

1 In 2001, U.S. Life replaced SMW’s previous insurance provider,

Paul Revere Life Insurance Co.

away from the floor preparing for trades or reconciling

accounts. Trading constituted his primary occupation, and

the evidence shows that, at times, he made over $30,000 in

profits per month.

Mr. Ruttenberg cleared his trades through SMW Trading

Co. (“SMW”). The firm contracted through U.S. Life1

 to

provide disability insurance to independent traders.

Mr. Ruttenberg paid premiums on a policy which entitled

him to $10,000 per month in coverage. On March 29, 2001,

Mr. Ruttenberg filed a claim for disability benefits. He

submitted evidence from his physician, Dr. Goldberg, that

asthma prevented him from performing his job. Two other

physicians, Dr. Taitz and Dr. Fisher, performed tests at

Dr. Goldberg’s request and found no nasal or other obstructions. U.S. Life forwarded the claim to its administrator,

Disability Reinsurance Management Services (“RMS”). The

RMS in-house consultant, Dr. Hogan, reviewed the claim

and offered medical opinions; RMS determined that Dr.

Goldberg’s opinion was based on subjective complaints.

RMS then arranged an appointment for Mr. Ruttenberg with

another specialist, Dr. Diamond.

Dr. Diamond examined Mr. Ruttenberg and diagnosed

asthma and vocal cord dysfunction and expressed concern

that Mr. Ruttenberg’s hoarseness, still apparent after

Mr. Ruttenberg had been away from work for seven months,

might be permanent. To the diagnosis, he attached a

pulmonary function report and a plethysmograph report; in

the latter, the technician noted that Mr. Ruttenberg had been

unable to achieve reproducible results in his exhalation flow

rate. Dr. Diamond appended an additional letter to the
4 No. 04-1653

2 U.S. Life’s review of the claim took well over one year;

Dr. Diamond performed this test approximately one year after

first diagnosing Mr. Ruttenberg.

report, in which he sought to clarify his opinion that Mr.

Ruttenberg is permanently disabled because he could not

continue to work as a trader.

Dr. Hogan reviewed Dr. Diamond’s report and concluded

that a definitive diagnosis could not be made without

viewing Mr. Ruttenberg’s vocal cords. A claims analyst for

U.S. Life told Mr. Ruttenberg that the company might accept

liability if the test supported Dr. Diamond’s conclusion. A

month later, RMS contacted Mr. Ruttenberg and said it was

waiting for Dr. Fisher to review Dr. Hogan’s interpretation.

Mr. Ruttenberg filed suit the next week.

B. District Court Proceedings

Mr. Ruttenberg’s action initially was based in diversity,

but the district court dismissed the suit without prejudice on

August 21, 2002, because Mr. Ruttenberg had not pleaded

diverse defendants. He later refiled the complaint, and the

parties agreed to a stay of proceedings while RMS rereviewed the claim. Mr. Ruttenberg submitted additional

medical evidence, including the results of a nasopharyngoscopy performed by Dr. Diamond.2

 The test led

Dr. Diamond to confirm his previous diagnosis and disability opinion because he saw the “classic posterior chinking”

associated with vocal cord dysfunction. He further stated

that the inconsistent results noted by the plethysmograph

technician a year earlier were not the result of insufficient

effort on Mr. Ruttenberg’s part, as had been implied by U.S.

Life, but were associated with the dysfunction. 
No. 04-1653 5

3 In an addendum to this report, submitted after

Mr. Ruttenberg’s claim ultimately was denied, Dr. Karetzky

admitted that the finding of posterior chinking validated

Dr. Diamond’s initial diagnosis but that he could not confirm the

chinking because the nasopharyngoscopy procedure had not

been videotaped. He further suggested that Mr. Ruttenberg’s

hoarseness could be psychosomatic. 

RMS forwarded the medical records to another expert, Dr.

Karetzky, for review. This physician determined that Mr.

Ruttenberg’s results stemmed from his poor effort and

found nothing that would impair significantly his work.3

 On

November 19, 2002, RMS reported the results to

Mr. Ruttenberg. It also raised questions about whether he

qualified as a full-time employee under the policy and requested documentation to establish that he had worked

more than thirty hours per week as required by the policy.

Mr. Ruttenberg responded that it was impossible to actually

work on the floor of the exchange for thirty hours per week

and asserted that he worked on trades and performed other

job-related functions which, taken together with his time on

the floor, amounted to more than thirty hours. On December

6, 2002, U.S. Life denied Mr. Ruttenberg’s claim. It concluded, among other things, that his injury did not meet the

definition of disability under the policy and that U.S. Life

could not substantiate his eligibility. The letter stated that

Mr. Ruttenberg had the right to appeal the decision; the

parties then returned to the district court.

U.S. Life filed a motion alleging that ERISA preempted

Mr. Ruttenberg’s state law claims and seeking dismissal for

failure to exhaust administrative remedies. In response, Mr.

Ruttenberg argued that his insurance plan was not an

ERISA plan because (1) SMW did not establish or maintain
6 No. 04-1653

4 In its order, the district court “conclude[d] that Ruttenberg

would qualify as a ‘participant’ under ERISA.” R.31 at 7. The

district court subsequently corrected this typographical error,

confirming that it meant to say “beneficiary” rather than

“participant.” R.62 at 13 n.4. 

5 Mr. Ruttenberg argued that ERISA’s saving clause avoided

preemption on one state law claim for vexatious refusal to pay.

The district court rejected his position because state law provided

for remedies not allowed in ERISA and allowing the claim to

proceed would thus undermine ERISA’s enforcement procedures.

See 29 U.S.C. § 1132(a).

it and (2) as an independent contractor, he was not a

participant or beneficiary as ERISA employs those terms. 

The district court rejected the first argument because

SMW created the insurance plan, designated eligible employees and contributed funds. With respect to

Mr. Ruttenberg’s second argument, the district court stated

that Mr. Ruttenberg qualified as a “beneficiary” under

ERISA,4

 29 U.S.C. § 1002(8), and his state law claims thus

were preempted by that statute, id. § 1144. The court based

its beneficiary determination on the plain language of

§ 1002(8), which defines a beneficiary as “a person designated . . . by the terms of an employee benefit plan, who is

or may become entitled to a benefit thereunder,” and precedent in other courts. Having determined that the policy

qualified as an ERISA plan, the district court found

Mr. Ruttenberg’s state law claims to be preempted.5

 The

district court dismissed Mr. Ruttenberg’s complaint with

leave to refile an ERISA cause of action; it thus found no

need to address U.S. Life’s argument that Mr. Ruttenberg

had failed to exhaust his administrative remedies.

Mr. Ruttenberg refiled an ERISA action.
No. 04-1653 7

6 The district court had to address several threshold matters

before reaching the merits. First, Mr. Ruttenberg requested

reconsideration of the previous determination that his state law

claims were preempted, but the court reaffirmed its previous

decision. Second, U.S. Life argued that the court should apply an

arbitrary and capricious standard in reviewing its decision to

reject Mr. Ruttenberg’s claim. The district court found no

language in the policy reserving discretion to the administrator

and rejected—as not part of the plan—an attendant document

offered by U.S. Life to establish its discretion. As a result, the

court reviewed the denial of benefits de novo. Third, the court

had to address whether Mr. Ruttenberg exhausted his administrative remedies, which had been deferred in the previous

decision. It excused exhaustion on the basis of futility: Nothing

in the course of the parties’ dealings indicated any result other

than that U.S. Life would once again deny Mr. Ruttenberg’s

claim.

7 These arguments are just two that U.S. Life adopted in the

course of this litigation. Its primary position has been that

Mr. Ruttenberg actually is not disabled, and, to this end, U.S. Life

has argued that he is faking the injury, that he had an undisclosed preexisting condition or that his injury is connected to past

alcohol or drug abuse. In the alternative, U.S. Life has argued,

among other things, that he failed to exhaust administrative

remedies and, finally, that Mr. Ruttenberg never was covered by

the policy. 

After discovery, the parties filed cross-motions for

summary judgment.6

 U.S. Life based its motion on two

grounds, both relating to Mr. Ruttenberg’s eligibility under

the policy: (1) that he was not an “employee” of SMW and

therefore was not covered by the policy terms; and (2) that

even if he was an “employee,” he did not qualify as “fulltime” as required by the policy because there was no

evidence that he worked more than thirty hours per week.7

The district court rejected the first argument, concluding
8 No. 04-1653

that the policy was ambiguous because it limited benefits to

“employees” but listed as employees traders reporting

income on IRS 1099 forms, even though such individuals

generally are considered independent contractors. Given the

ambiguity, the district court applied the maxim contra

proferentem and construed that ambiguity against U.S. Life,

foreclosing the company from arguing that Mr. Ruttenberg

was not an “employee” under the policy.

The court, however, accepted U.S. Life’s second argument.

The district court read the policy’s terms to require plainly

that Mr. Ruttenberg be a full-time employee and, just as

plainly, that he work at least thirty hours per week. The

evidence submitted by Mr. Ruttenberg indicated that he

spent at most fifteen to twenty hours working the exchange

floor, and the court noted that

[p]resumably by those hours he meant to suggest that

he was trading in the pit during those times, and it is

reasonable to suggest that Ruttenberg may have spent

another 10 hours a week preparing for his trades.

However, with no evidence in the record to support this

or otherwise create a question of fact on this issue, there

is little basis to say that Ruttenberg could be considered

“Full-Time” based on the policy’s express terms. 

R.62 at 23. Finding no evidence that Mr. Ruttenberg was

eligible for benefits under the policy, the court granted U.S.

Life’s motion for summary judgment. 

Mr. Ruttenberg appeals the grant of summary judgment

based on his ineligibility under the “full-time” provision,

and U.S. Life cross-appeals the district court’s initial

determinations that the Company did not have interpretive

authority under the policy and that Mr. Ruttenberg qualified as an “employee.”
No. 04-1653 9

II

DISCUSSION

A. Standard of Review

This court reviews a district court’s grant or denial of

summary judgment de novo, making all reasonable inferences in favor of the nonmoving party. See Vallone v. CNA

Fin. Corp., 375 F.3d 623, 631 (7th Cir. 2004). In interpreting

ERISA plans, we apply general principles of contract law

under the federal common law guiding interpretation of

ERISA claims. Bock v. Computer Assocs. Int’l, Inc., 257 F.3d

700, 704 (7th Cir. 2001). 

In ERISA cases, an important principle governs the scope

of a district court’s, and therefore our, review: A district

court reviews de novo a denial of benefits unless the plan

grants to the plan administrator the discretionary authority

to construe policy terms. See Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101, 115 (1989); see also Phillips v. Lincoln

Nat’l Life Ins. Co., 978 F.2d 302, 311 (7th Cir. 1992). If the plan

grants an administrator such authority, that administrator’s

interpretation of contract terms is reviewed under an

arbitrary and capricious standard. Firestone, 489 U.S. at 115.

U.S. Life submits that the district court erred in determining

that the policy did not give U.S. Life interpretive discretion;

in its view, the appropriate review should be deferential

rather than de novo.

To avoid an overly broad grant of discretionary authority

based on boilerplate policy language, we have articulated a

notice requirement that must be met before an insurer may

be said to have retained interpretive discretion: An employee must be told in clear terms that the administrator

reserves the authority to construe terms in the plan. See

Herzberger v. Standard Ins. Co., 205 F.3d 327, 333 (7th Cir.

2000). Absent notice sufficient to satisfy the Herzberger
10 No. 04-1653

8 A summary plan description is “a plain language version of the

Plan.” Powell v. A.T. & T. Communications, Inc., 938 F.2d 823, 824

(7th Cir. 1991). 

standard, an insurer is not entitled to arbitrary and capricious review of its interpretations.

U.S. Life submits that it met the Herzberger notice standard. According to the Company, the relevant notice is

contained in a document titled the “Master Application for

Employee Benefits” (“Master Application”). R.36-1 at 51.

Specifically, U.S. Life invites our attention to the

“Applicant’s Declaration” section of the Master Application,

which states that

[i]f the insurance contract [that SMW applied for]

compromises a part of an employee benefit plan, [U.S.

Life] is granted sole discretionary authority to determine eligibility, make all factual determinations and to

construe all terms of the policy.

Id. at 53, ¶ 6. The district court erred, according to U.S. Life,

in ignoring the Master Application and basing its lack-ofnotice determination on the summary plan description

(“SPD”) given to the insured.8

 Further, U.S. Life argues that

its relationship is actually with the policyholder, SMW, and

that the terms of the plan (in its view, the Master

Application) control over the SPD. In U.S. Life’s view,

responsibility for notifying independent traders of the

Master Application provisions rested with SMW; while

Mr. Ruttenberg might have an independent cause of action

against SMW, that fact does not change the discretionary

authority vested in U.S. Life by the Master Application. 

Both the SPD and the plan’s terms are silent as to U.S.

Life’s interpretive authority. U.S. Life points only to language contained in the Master Application, but the Master
No. 04-1653 11

9 For example, the discretionary language did not recur in the

“Digest of Group Insurance Plan.” R.36-1 at 54. Nor is there

language reserving interpretive authority to U.S. Life in the

certificate of insurance. Id. at 273 et seq. Notably, a transmittal

sheet from U.S. Life’s Contract Development office itself refers to

the certificate of insurance as “the contract.” Id. at 273.

Application is, by its terms, an application for group

insurance coverage submitted by SMW, not the policy itself.

Neither the SPD, the certificate of insurance, nor any

subsequent insurance document reproduces the discretion

provision and no document notifies an insured that U.S. Life

retains interpretive discretion.9

 Given the lack of discretionary language in any document except for the Master

Application, we cannot say that boilerplate language in a

contract application—representing the negotiations leading

to contract formation rather than the substance of the

contract—qualifies as the type of notice required by

Herzberger. We, like the district court, therefore review Mr.

Ruttenberg’s claims de novo and afford no deference to U.S.

Life’s interpretation of contract terms. 

B. ERISA Preemption

Mr. Ruttenberg first challenges the district court’s determination that ERISA preempted his state law claims. The

statute “supersede[s] any and all State laws insofar as they

. . . relate to any employee benefit plan described in [29

U.S.C. §] 1003(a).” 29 U.S.C. § 1144(a). Under § 1003, ERISA

applies to “any employee benefit plan” that is, among other

things, maintained by an employer engaged in commerce.

Id. § 1003(a)(1). As relevant to this appeal, the statute
12 No. 04-1653

10 The term “employee benefit plan” or “plan” in the ERISA

statute refers to either an employee welfare benefit plan or an

employee pension benefit plan. 29 U.S.C. § 1002(3). The parties

agree that the plan at issue here would be an employee welfare

benefit plan, id. § 1002(1), if indeed it qualifies as any ERISA plan.

defines an “employee benefit plan,” 10 as “any plan, fund, or

program which was . . . established or maintained by an

employer . . . for the purpose of providing for” one of two

classes of covered persons: “participants or their beneficiaries.” Id. § 1002(1). A “participant” in an ERISA-qualifying

plan 

means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to

receive a benefit of any type from an employee benefit

plan which covers employees of such employer or

members of such organization, or whose beneficiaries

may be eligible to receive any such benefit.

Id. § 1002(7). The other qualifying ERISA class members are

“beneficiaries,” that is, “a person designated by a participant, or by the terms of an employee benefit plan, who is or

may become entitled to a benefit thereunder.” Id. § 1002(8).

Thus, Mr. Ruttenberg’s state law claims would be preempted by the ERISA scheme if he qualifies as either a

“participant” or a “beneficiary” of the U.S. Life plan. Given

the procedural posture in which it determined the question,

the district court assumed that Mr. Ruttenberg was not an

“employee” of SMW and therefore could not be considered

a plan “participant.” For purposes of the present discussion,

we also shall assume that Mr. Ruttenberg does not qualify

as an employee and therefore is not an ERISA “partici-
No. 04-1653 13

11 The question of Mr. Ruttenberg’s status arose when the district

court decided U.S. Life’s preemption motion. At the time, the

district court did not have occasion to construe the contractual

term “employee” and its application to Mr. Ruttenberg, as it did

in the subsequent motion for summary judgment. We place

ourselves in the district court’s shoes and assume, for the present

discussion, that Mr. Ruttenberg is not an “employee” or an

ERISA “participant.” 

pant.”11 Under this assumption, ERISA preemption is only

possible if Mr. Ruttenberg qualifies as a “beneficiary.” 

We look first to the language of the statute. When the

language of a statutory provision is clear, our sole function

is to enforce its terms. See United States v. Jones, 372 F.3d 910,

912 (7th Cir. 2004). Read alone, the ERISA definition of

“beneficiary” seems clear. A beneficiary is defined as one

who is “designated by a participant, or by the terms of an

employee benefit plan, who is or may become entitled to a

benefit thereunder.” 29 U.S.C. § 1002(8) (emphasis added).

By employing commas to set the emphasized language

apart, the statute appears to establish two distinct classes of

individuals who might be “beneficiaries”: those designated

by a participant and those who are, like Mr. Ruttenberg,

directly designated to receive benefits by the plan itself. 

But other ERISA provisions might be said to raise questions about the clarity of § 1002(8). For example, one might

reach an apparent contradiction between the definition of a

qualified benefit plan as one “maintained for the purpose of

providing for its participants or their beneficiaries,” id. §

1002(1) (emphasis added), and the § 1002(8) language. The

congressional findings that introduce ERISA in the United

States Code, see id. § 1001(b) (declaring ERISA’s purpose to

be the protection of commerce and “the interests of participants in employee benefit plans and their beneficiaries”
14 No. 04-1653

12 In addition to Ritter, Mr. Ruttenberg urges us to consider the

position of the United States Department of Labor, which in a

(continued...)

(emphasis added)), might also be said to be in tension with

§ 1002(8). Mr. Ruttenberg therefore suggests a limited

reading of the term “beneficiary.” In his view, the term

encompasses only those individuals designated as such by

plan participants (i.e., SMW employees). By contrast, the

district court, and U.S. Life here, take the view that § 1002(8)

includes within the definition of “beneficiary” those who,

like Mr. Ruttenberg, are designated to receive benefits by

the plan itself and not just those who are designated

beneficiaries by a participant.

We do not think these provisions, when read in the

context of the entire statute, create a severe textual ambiguity. Our sister circuits that have considered the question

agree with U.S. Life’s view that, under § 1002(8), a “beneficiary” may be a person designated to receive benefits under

a plan; “beneficiary” is not limited to those who are designated as beneficiaries by a “participant.” See Hollis v.

Provident Life & Accident Ins. Co., 259 F.3d 410, 415 (5th Cir.

2001); Wolk v. UNUM Life Ins. of America, 186 F.3d 352, 356

(3d Cir. 1999); Engelhardt v. Paul Revere Life Ins. Co., 139 F.3d

1346, 1351 (11th Cir. 1998); Prudential Ins. Co. of America v.

Doe, 76 F.3d 206, 208 (8th Cir. 1996); Peterson v. American Life

& Health Ins. Co., 48 F.3d 404, 408-09 (9th Cir. 1995). Indeed,

the same interpretation has been applied by district courts

in this circuit. See, e.g., Turnoy v. Liberty Life Assurance Co. of

Boston, No. 02 C 6066, 2003 WL 223309 (N.D. Ill. Jan. 30,

2003).

Mr. Ruttenberg largely grounds his construction of the

term “beneficiary” on a single case, Ritter v. Massachusetts

Casualty Insurance Co., 786 N.E.2d 817 (Mass. 2003).12
No. 04-1653 15

12 (...continued)

Supreme Court amicus brief criticized the “broad interpretation

of ‘beneficiary’ ” “with no logical stopping point” articulated

in Hollis. See Brief for the United States as Amicus Curiae

Supporting Petitioners at 25, Yates v. Hendon, 541 U.S. 1 (2004)

(No. 02-458). 

He argues that the Government’s position is entitled to Chevron

deference, but we need not consider this argument in detail

because we cannot accept Mr. Ruttenberg’s reliance on the Yates

brief for two reasons. First, the Government’s position arose in a

different context; at issue in Yates was whether a working owner,

not an independent contractor designated to receive benefits by

the plan, could be considered a plan beneficiary. Second, more

importantly, it would appear that Mr. Ruttenberg does meet even

the Government’s interpretation of the term. In Yates, the

Government indicated that it objected to an overly broad reading

of the term “beneficiary” that included persons who “lack[ ] any

employment nexus with the plan sponsor.” Id. It is clear that in

Mr. Ruttenberg’s case there is no danger of an individual lacking

any employment nexus being covered by the plan. Even if he

cannot be considered an employee, Mr. Ruttenberg cleared his

trades through SMW, and thus had a significant nexus with the

plan sponsor. 

Certainly, Ritter criticized what it considered to be an

overly-broad reading of the ERISA term “beneficiary.” See

id. at 823-24. Although Mr. Ruttenberg is correct that the

Supreme Judicial Court of Massachusetts’ interpretation

appears to support his position, we agree with the district

court that, at most, Ritter simply is inconsistent with the

approach in our sister circuits. We join the weight of

authority in concluding that an ERISA “beneficiary” may be

a person designated to receive benefits under the terms of

the plan itself; the definition is not limited to individuals

designated by a “participant” to receive benefits. The
16 No. 04-1653

13 Alternatively, for reasons that will become clear, we believe

that the operative assumption—that Mr. Ruttenberg does not

qualify as a “participant”—is incorrect. In reaching its decision,

the district court did not, at the time, find it necessary to determine whether Mr. Ruttenberg was an “employee” under the plan

and, therefore, an ERISA “participant.” The district court

subsequently found that he was an employee under the plan and,

for reasons noted below, we agree that the contract term

“employee” should be construed to include Mr. Ruttenberg.

Given this determination, Mr. Ruttenberg is an ERISA “employee” and his state law claims would be preempted because he

is a “participant” under 29 U.S.C. § 1002(7). 

district court did not err in determining that Mr. Ruttenberg

qualified as a “beneficiary” of the U.S. Life policy for ERISA

purposes and correctly found his state law claims preempted by the federal statute.13

C. Exhaustion of Administrative Remedies

An ERISA plaintiff must exhaust all available administrative remedies before filing suit to challenge a denial of

benefits. Zhou v. Guardian Life Ins. Co. of America, 295 F.3d

677, 679 (7th Cir. 2002). Because the ERISA plaintiff need

only exhaust available remedies, “we have recognized two

circumstances in which a failure to exhaust may be excused.

One is if there is a lack of meaningful access to review

procedures, and the other applies if pursuing internal

remedies would be futile.” Stark v. PPM America, Inc., 354

F.3d 666, 671 (7th Cir. 2004); see also Lindemann v. Mobil Oil

Corp., 79 F.3d 647, 650 (7th Cir. 1996). Futility is demonstrated by showing that it is “certain” a plaintiff’s claim will

be denied by the plan administrator. Robyns v. Reliance

Standard Life Ins. Co., 130 F.3d 1231, 1238 (7th Cir. 1997). The

decision to require exhaustion is committed to the sound
No. 04-1653 17

discretion of the district court and, consequently, is reviewed only for abuse of that discretion. Stark, 354 F.3d at

671. 

Our review of the record reveals that Mr. Ruttenberg did

not follow U.S. Life’s administrative requirements.

Mr. Ruttenberg filed suit prematurely; U.S. Life had not

officially granted or denied his claim when he brought suit.

He agreed to stay the proceedings to conclude the administrative process, but, once U.S. Life denied his claim, he

undoubtedly failed to file an administrative appeal within

the allowable 180-day time period. Despite these failures,

there certainly is nothing in the record indicating that, had

Mr. Ruttenberg complied with the administrative appeals

requirement, U.S. Life would have altered its decision to

deny benefits. Indeed, the record indicates that U.S. Life has

opposed Mr. Ruttenberg’s claim at every step. U.S. Life

spent more than eighteen months adjudicating

Mr. Ruttenberg’s claim. In the course of this process, it contested every medical opinion favorable to Mr. Ruttenberg,

including that of its own expert Dr. Diamond. After

Mr. Ruttenberg agreed to a stay in the proceedings, U.S. Life

spent over a year reviewing his submission before it denied

the claim, knowing that he would resume the suit in the

event of an unfavorable result. 

The history of this matter, both before the district court

and in administrative proceedings, provides ample support

for the district court’s view that U.S. Life would have denied

Mr. Ruttenberg’s claim even if he had filed an administrative appeal. Indeed, there is no evidence in the record

demonstrating that U.S. Life’s denial would be anything but

“certain” if the company had reviewed Mr. Ruttenberg’s

claim once again. Accordingly, we cannot say that the

district court’s futility determination was “ ‘down-right

unreasonable.’ ” Zhou, 295 F.3d at 679 (quoting Cincinnati
18 No. 04-1653

Ins. Co. v. Flanders Elec. Motor Serv., 131 F.3d 625, 628 (7th

Cir. 1997)). Therefore, the district court’s futility determination was a proper exercise of discretion. 

D. Eligibility under the Policy

Mr. Ruttenberg submits that the district court erred in

finding the “full-time,” thirty-hour work requirement to be

unambiguous. In the alternative, he challenges the court’s

determination that he did not provide sufficient evidence

demonstrating that he worked more than thirty hours per

week. U.S. Life argues in its cross-appeal that the district

court erred in finding Mr. Ruttenberg to be an “employee”

under the policy. The Company asserts that he was ineligible for coverage because he was neither an “employee” nor

did he work “full-time.”

Before considering Mr. Ruttenberg’s eligibility under the

policy, we must resolve two threshold disputes between the

parties. First, Mr. Ruttenberg, relying on Great-West Life

Assurance Co. v. Levy, 382 F.2d 357, 360 (10th Cir. 1967),

contends that the burden of proving his ineligibility rests

with U.S. Life. We cannot accept this view. Mr. Ruttenberg

seeks to enforce benefits under the policy; he therefore bears

the burden of proving his entitlement to contract benefits.

See Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir.

1997); Fuja v. Benefit Trust Life Ins. Co., 18 F.3d 1405, 1408

(7th Cir. 1994). 

Second, Mr. Ruttenberg submits that U.S. Life waived a

challenge to his eligibility under the policy because it did

not raise this contention before the administrative record

closed. U.S. Life responds that Mr. Ruttenberg had adequate

notice that the Company challenged his eligibility during

the administrative process. Although U.S. Life did not

consistently challenge Mr. Ruttenberg’s eligibility in the
No. 04-1653 19

14 The first time U.S. Life questioned Mr. Ruttenberg’s eligibility

was in a November 19, 2002 letter, during the administrative

review—more than a year after Mr. Ruttenberg filed suit and

more than a year and a half after he filed his claim. Prior to this

letter, U.S. Life disputed whether Mr. Ruttenberg was disabled

and the amount owed under the policy, not whether he was

covered by the terms of the policy. On November 27, 2002,

Mr. Ruttenberg responded by submitting trading records (which

did not indicate hours worked) and stating that the time he spent

on the floor was supplemented by preparation time, administrative tasks and market research, all totaling over thirty hours per

week. His submissions did not provide documentation of the

time he spent preparing for or closing out trades; in his deposition to U.S. Life he stated that he did not keep records of this

time, and there is no indication that the policy required keeping

such records, let alone that Mr. Ruttenberg was informed of such

a requirement. In its final letter of denial, U.S. Life reserved the

right to challenge his eligibility under the policy because it did

not have documentation establishing that he was a full-time

worker. This disclaimer was contained in a single paragraph after

four pages discussing whether Mr. Ruttenberg was disabled. U.S.

Life next raised the issue in its response to Mr. Ruttenberg’s

motion for summary judgment, to which Mr. Ruttenberg

responded as he does here: that working thirty hours on the

trading floor was impossible, that the thirty-hour requirement

did not apply to him and that, at any rate, he worked more than

the required hours in off-floor activities. U.S. Life reasserted its

belief that he did not qualify as a full-time employee in its crossmotion for summary judgment, and Mr. Ruttenberg stood by the

answer in the reply brief to his motion. U.S. Life gave its fullest

articulation of Mr. Ruttenberg’s infirmity under the thirty-hour

provision in its reply to his response. 

course of this claim,14 we agree with the Company’s assessment. Before the administrative record closed, the Company

twice notified Mr. Ruttenberg that it questioned whether he

met the “full-time” eligibility requirement: through a letter
20 No. 04-1653

sent to his counsel on November 19, 2002, and in the letter

denying Mr. Ruttenberg’s claim. Mr. Ruttenberg acknowledged U.S. Life’s challenge by stating, in response to the

November 19 letter, that he “obviously” spent more than

thirty hours per week preparing for trades. See R.49 at 5; see

also R.36-2 at 505. Given that he had notice that his “fulltime” status was at issue and had the burden of proving

eligibility, Mr. Ruttenberg’s waiver argument fails. We thus

must consider his eligibility as an “employee” who works

“full-time.”

1. “Employee”

In its cross-appeal, U.S. Life asserts error in the district

court’s finding that the term “employee” is ambiguous, and

in its use of the contra proferentem maxim to construe the

term against U.S. Life. The district court considered the term

“employee” as used in the contract ambiguous because its

terms include filers of form 1099 who are typically independent contractors rather than common law employees.

For his part, Mr. Ruttenberg argued at various points that he

is not an employee, but an independent contractor. Regardless of the label, however, Mr. Ruttenberg presumably

agrees that he must be considered an “employee” as the

policy uses that term; otherwise, he would be ineligible for

any benefits.

U.S. Life submits that looking to the form 1099 provision

is only one factor in determining whether a person is an

employee or an independent contractor. The company also

asserts that contra proferentem is an interpretive tool that

ought to be employed only to tiebreaker situations and,

consequently, was improperly applied here. See Nationwide

Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-25 (1992). In its

view, the court first must analyze extrinsic evidence to
No. 04-1653 21

15 The IRS requires employers to account for “employees”

through form W-2, see generally Internal Revenue Serv., U.S. Dep’t

(continued...)

resolve the ambiguity and resort to contra proferentem only

if consideration of such extrinsic evidence does not yield a

resolution.

The situation here differs significantly from that confronted in Darden. There, the Court was called upon to

interpret the ERISA term “employee” in determining what

constituted an ERISA “participant.” But the issue in this

case does not present a question of statutory interpretation;

rather it presents a question of contract construction. The

district court here had to interpret the term “employee”

contained in this contract to determine whether the parties

intended it to cover traders like Mr. Ruttenberg. The

relevant contract provision describes “Eligible Classes of

Employees” as

[a]ll full-time employees of the Participating Employer

who are:

- managers and officers earning over $20,000 annually

- traders who report earnings on their 1099 form

- firm traders who report prior years on their 1099 DDE

form, 

but not those who are temporary, part-time or seasonal.

R.36-1 at 299 (the “eligibility clause”). 

Within this provision, the term “employee” is not otherwise defined in the policy, unlike terms such as “full-time.”

An “employee” in the traditional sense is a “person who

works in the service of another person . . . under which the

employer has the right to control the details of work

performance.” Black’s Law Dictionary 543 (7th ed. 1999).

However, employers account for income paid to these

“employees” on IRS form W-2.15 Generally speaking, a
22 No. 04-1653

15 (...continued)

of the Treasury, Publication 15: Employer’s Tax Guide (2005), not on

form 1099, see Internal Revenue Serv., U.S. Dep’t of the Treasury,

Frequently Asked Questions 12.2: Small Business/Self-Employed/Other

Business: Form 1099-MISC & Independent Contractors, at

http://www.irs.gov/faqs/faq12-2.html.

16 In Hall v. Life Insurance Co. of North America, 317 F.3d 773 (7th

Cir. 2003), the plaintiff sought to use contra proferentem to

preclude the defendant from reducing her benefits by the amount

that she received from an additional insurer. We held that the

maxim could not be invoked “to justify a pro-insured decision in

every case.” Id. at 776. That is, there first must be an ambiguity:

The contra proferentem rule that Hall invokes is, however, just

a tiebreaker; it does not entitle insureds to prevail simply

because lay readers do not know all technical details of

(continued...)

worker whose income is reported on form 1099 is an

independent contractor, not a common law employee. See

EEOC v. N. Knox Sch. Corp., 154 F.3d 744, 747 (7th Cir. 1998).

The inclusion of form 1099 in defining the contractual term

“employee” thus indicates that the term includes more than

just common law employees, and that other workers may be

eligible under the policy. Those other workers may include

independent contractors like Mr. Ruttenberg, but the scope

of the contractual term is ambiguous. 

We have endorsed the use of contra proferentem to resolve

such ambiguities, at least in circumstances where—as

here—the plan administrator was not empowered to

interpret contract terms. See Phillips v. Lincoln Nat’l Life Ins.

Co., 978 F.2d 302, 311-13 (7th Cir. 1992). U.S. Life argues that

this court’s more recent precedent, see Hall v. Life Ins. Co. of

N. America, 317 F.3d 773, 776 (7th Cir. 2003),16 limits contra
No. 04-1653 23

16 (...continued)

insurance law. English does not contain words for all

complex economic arrangements; whenever the language

lacks a one-to-one mapping of words to ideas (or words to

things) there is a potential for ambiguity and confusion. This

potential is not enough to justify a pro-insured decision in

every case, however . . . .

The doctrine that ambiguities are resolved against insurers

serves its function when it prevents traps for the unwary.

Hall was not ensnared; even a modest degree of diligence

would have enabled a CPA to understand that the New York

Life policy, offered through a professional group and

captioned “Group Insurance,” probably would be classified

as “group insurance” under the [defendant] LINA policy.

Hall did not read the LINA policy, misunderstand a vague

passage or veiled allusion, and only then opt into the New

York Life policy; she did not read the LINA policy at all until

it was too late. That omission led her to pay for coverage

under the New York Life policy, which, as things have

turned out, offered her no net benefit, but ERISA does not

protect employees against their own imprudence.

Id. (citations omitted).

17 For this reason we cannot accept U.S. Life’s invitation to

remand to the district court so that it may offer extrinsic evidence

supporting its position. U.S. Life had ample opportunity to offer

this evidence to the district court in the first instance. 

proferentem to “tiebreaker” situations; the proper approach,

according to the Company, was for the court to look first to

extrinsic evidence in interpreting the ambiguous term. Even

if U.S. Life is correct that the district court should have

looked to extrinsic evidence in construing the eligibility

clause, it offered no such evidence to the district court, nor

does it suggest the existence of such evidence to this court.17

Given the lack of extrinsic evidence, the use of contra
24 No. 04-1653

proferentem would be justified as a tiebreaker even under

Hall. Indeed, we have noted that the contra proferentem

doctrine “serves its function when it prevents traps for the

unwary.” Id. Allowing Mr. Ruttenberg to purchase insurance for which U.S. Life now claims that he is ineligible

constitutes the type of “trap for the unwary” that contra

proferentem is meant to prevent. The district court correctly

found the term “employee” to be ambiguous, and properly

construed the term against the policy’s drafter, U.S. Life.

2. “Full-Time”

The term “full-time” is defined to

mean[ ] active work on the Participating Employer’s

regular work schedule for the class of employees to

which you belong. The work schedule must be at least

30 hours a week.

R.36-1 at 298. Basic to the definition of “full-time” is the

requirement that a covered employee work for more than

thirty hours per week. The district court found the term to

be unambiguous and determined that Mr. Ruttenberg failed

to offer sufficient evidence that he worked the requisite

thirty hours per week.

U.S. Life urges us to affirm the district court’s determinations, both its finding that the term “full-time” is unambiguous and its conclusion that Mr. Ruttenberg failed to offer

sufficient evidence. The company contends that

Mr. Ruttenberg failed to provide evidence that he met the

thirty-hour requirement, even off of the trading floor; in

response to questions about his eligibility Mr. Ruttenberg

argued only that he spent more than thirty hours per week

working on trades and that it was impossible to spend more

than thirty hours per week on the floor. Assuming that the

“full-time” requirement unambiguously includes working
No. 04-1653 25

more than thirty hours per week, U.S. Life asserts that the

district court correctly determined that Mr. Ruttenberg

failed to demonstrate his eligibility.

In reply, Mr. Ruttenberg submits that the plain language

of the definition, requiring “active work on the Participating

Employer’s regular work schedule for the class of employees

to which you belong,” id. (emphasis added), indicates that the

full-time requirement applies only to SMW’s common law

employees, not to independent traders covered by the

policy; he asserts that, at the very least, the thirty-hour

requirement’s application is ambiguous. As for the evidence

presented, he contends that, at certain stages in the litigation, U.S. Life adopted his view that a trader could not work

thirty hours on the floor and that he did work more than

thirty hours per week in preparing for trades. He points out

that other courts have relaxed contractual “full-time”

requirements to find that an insured is covered. See Burke v.

Blue Cross Blue Shield of Nebraska, 558 N.W.2d 577 (Neb.

1997); Jetson v. CNA Ins. Co., 536 So. 2d 569 (La. Ct. App.

1988). Mr. Ruttenberg also submits that it would defeat the

reasonable expectations of the insured to deny coverage to

more than eighty traders, based on a “full-time” requirement they cannot meet, after they have paid for the insurance.

Contrary to Mr. Ruttenberg’s assertion, U.S. Life did not

adopt in its statement of facts the position that he could not

work more than thirty hours on the floor and that he

worked the required hours in preparing for trades. U.S.

Life’s statement of facts listed the text of a letter received

from Mr. Ruttenberg’s attorney only to support the fact that

the letter was received, not the letter’s contents. Indeed,

aside from assertions that he “obviously” worked more than

thirty hours per week preparing for trades, he submitted no

evidence that such was the case, for example, through

affidavits from himself or associates. He was aware before
26 No. 04-1653

the administrative record closed that U.S. Life questioned

his eligibility under the “full-time” requirement, but failed

to supplement the record. Thus, Mr. Ruttenberg presented

insufficient evidence that he actually worked more than

thirty hours per week. On this record, therefore, any relief

Mr. Ruttenberg may be granted must be found through

contractual ambiguity.

Turning to the ambiguity question, other courts’ interpretations of the term “full-time” in other contracts do not

control the present inquiry. Rather, we must determine

what the term means in this insurance contract.

In interpreting a contractual term, we cannot give meaning to a word standing alone. Rather, we must take into

account its placement in the text and discern its proper

relationship to the text in which it is placed. Here, given the

ambiguity in the term “employee,” it is not clear from the

contract that the “full-time” requirement applies to noncommon law classes of “employees” like independent

traders. Indeed, in defining “full-time,” the policy simply

refers back to the ambiguous term “employee”: “FULLTIME means active work on the Participating Employer’s

[SMW’s] regular work schedule for the class of employees

to which you belong.” R.36-1 at 298. If, as we have determined, the term “employee” is itself ambiguous as applied

to Mr. Ruttenberg, then the policy is equally ambiguous

about the application of the “full-time” requirement to his

class of worker. 

Moreover, the “full-time” provision is ambiguous even

apart from the lack of clarity in the term “employee.”

Independent traders like Mr. Ruttenberg do not work

according to a work schedule established by SMW; independent traders clear their trades through SMW but the

company does not control the details of their work schedules. Similarly, to qualify as a “full-time” worker, the
No. 04-1653 27

18 These ambiguities, set forth above, are in addition to the

apparent question of the “class” of “employees” to which traders

like Mr. Ruttenberg belong. Documents which outline the details

of the policy divide individuals into four numbered classes that

do not necessarily correspond to the categories in the bulleted

eligibility clause. Mr. Ruttenberg initially took the position that

he belonged to “Class 3,” which he argued made him a nonemployee. As the district court noted, this classification would be

problematic for him because, as a non-employee, he would be

ineligible for any policy benefits. Some policy documents list Mr.

Ruttenberg as “Class 4,” R.36-1 at 72. The only differences

between the classifications seem to be in titles: Class 3 members

are titled “Program Traders,” id. at 75, and Class 4 members are

listed in the category “All Others,” id. at 76; but Classes 3 and 4

are both governed by the same contractual provisions, see id. at

294. To confuse matters further, the policy terms seem to encompass Mr. Ruttenberg regardless of his classification number

because the policy’s eligibility clause includes traders like

Mr. Ruttenberg “who report earnings on the 1099 form.” Id. at

299. 

employee must render “active work,” defined as performing

“each duty of your job for full pay.” Id. It is not clear how

“full pay” is measured for independent traders who do not

draw a salary from SMW and simply clear their trades

through the company. The inclusion of independent traders

as “employees” under the eligibility clause cannot be

reconciled with a definition of “full-time” that such workers

cannot meet.18 One of the provisions must take precedence,

and arguably this means that the “full-time” requirement

does not apply to the class of eligible employees that

includes Mr. Ruttenberg.

Mr. Ruttenberg’s proposed interpretation, that the “fulltime” requirement does not apply to his category of eligible

“employee,” is at least as plausible as U.S. Life’s. The term
28 No. 04-1653

19 Because the district court erred in finding the term “full-time”

to be unambiguous, our decision need not rest on

Mr. Ruttenberg’s argument that the position adopted by U.S. Life

defeats the expectations of the insured. However, we note in the

alternative that courts in ERISA claims interpret policies based on

normal contract principles; this includes considering the reasonable expectations of the insured. See Lifson v. INA Life Ins. Co. of

New York, 333 F.3d 349, 353 (2d Cir. 2003); Tester v. Reliance

Standard Life Ins. Co., 228 F.3d 372, 375 (4th Cir. 2000); Perez v.

Aetna Life Ins. Co., 150 F.3d 550, 556-57 (6th Cir. 1998) (en banc);

Saltarelli v. Bob Baker Group Med. Trust, 35 F.3d 382, 386 (9th Cir.

1994). Mr. Ruttenberg offered sufficient evidence that he and

other independent traders expected to be covered by the plan’s

terms, and we do not believe that such an expectation is so

unreasonable to warrant summary judgment. We further note

that, on this record, and for reasons discussed above, application

of the contra proferentem maxim to interpret the “full-time”

provision on remand may be appropriate.

cannot be said to be unambiguous, and the district court

erred in dismissing his claim on that ground. Given the

error, we remand to the district court for further proceedings.19

Apart from the ambiguity questions, Mr. Ruttenberg and

U.S. Life each argue that they are entitled to summary

judgment on the merits of their respective claims. U.S. Life

asserts that Mr. Ruttenberg is not disabled; for his part

Mr. Ruttenberg contends that U.S. Life’s own expert in fact

found him to be disabled. The merits of Mr. Ruttenberg’s

claim, whether he is disabled and therefore entitled to the

policy benefits, is a matter properly reserved to the district

court on remand. 
No. 04-1653 29

Conclusion

For the foregoing reasons, we reverse the district court’s

decision and remand for further proceedings consistent with

this opinion. Mr. Ruttenberg may recover his costs in this

court.

REVERSED and REMANDED

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—6-30-05