Court Opinion

ID: 2968648
Source: CourtListenerOpinion
Date Created: 2015-09-22 07:43:44.457223+00
Date Added: 2024-06-11T11:43:19.110194
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
             FOR THE FOURTH CIRCUIT

KENNETH FORTIER,                       
                Plaintiff-Appellant,
                 v.
                                            No. 10-1441
PRINCIPAL LIFE INSURANCE
COMPANY,
               Defendant-Appellee.
                                       
        Appeal from the United States District Court
   for the Eastern District of North Carolina, at Raleigh.
            James C. Dever III, District Judge.
                    (5:08-cv-00005-D)

                Argued: September 20, 2011

                 Decided: January 11, 2012

     Before WILKINSON, NIEMEYER, and FLOYD,
                   Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the
majority opinion, in which Judge Wilkinson joined. Judge
Floyd wrote a dissenting opinion.

                         COUNSEL

ARGUED: Andrew O. Whiteman, HARTZELL & WHITE-
MAN, LLP, Raleigh, North Carolina, for Appellant. Stirman
2             FORTIER v. PRINCIPAL LIFE INSURANCE
Russell Headrick, BAKER, DONELSON, BEARMAN,
CALDWELL & BERKOWITZ, PC, Knoxville, Tennessee,
for Appellee. ON BRIEF: Jennifer P. Keller, BAKER,
DONELSON, BEARMAN, CALDWELL & BERKOWITZ,
PC, Johnson City, Tennessee, for Appellee.

                          OPINION

NIEMEYER, Circuit Judge:

   After Dr. Kenneth Fortier became medically disabled, he
closed his practice, Fortier Obstetrics & Gynecology, PLLC,
and applied for disability benefits from Principal Life Insur-
ance Company, which had issued short-term and long-term
group disability policies to the practice. The policies provide
that an insured who is disabled is entitled to receive 60% of
his predisability earnings, capped at $1,500 per week for
short-term benefits and $6,000 per month for long-term bene-
fits. Those benefits, however, are reduced by the amount that
all disability benefits (from both individual and group poli-
cies) exceed his predisability earnings. Principal Life deter-
mined that Fortier was disabled, as defined in the policies, but
that, in view of the fact that he was receiving $15,470 per
month in disability benefits on his individual disability poli-
cies issued by another company, he was not entitled to any
further benefits under Principal Life’s group disability poli-
cies.

   Dr. Fortier commenced this action under ERISA, claiming
that the administrator of the Principal Life policies had mis-
construed the policies in calculating his predisability earnings
at $9,916 and that, with a proper calculation, his predisability
earnings were far greater, entitling him to the maximum bene-
fits from Principal Life, despite the fact that he was receiving
$15,470 on his individual disability policies. More particu-
larly, he contends that Principal Life, when calculating his
              FORTIER v. PRINCIPAL LIFE INSURANCE             3
predisability earnings, erroneously deducted from his gross
predisability earnings extraordinary and one-time business
expenses incurred by him in 2003-04 in starting up his prac-
tice and in pursuing litigation with partners in his former med-
ical practice. Without the reductions resulting from these
extraordinary, one-time business expenses, Fortier’s predisa-
bility earnings were sufficiently large to entitle him to the
maximum disability benefits from the group policies.

   The district court, ruling on cross-motions for summary
judgment, entered judgment in favor of Principal Life, con-
cluding that the administrator’s interpretation was a reason-
able one. The administrator, who was given "complete
discretion" to interpret the policies, had concluded that
because Fortier claimed his extraordinary expenses as deduc-
tions on his federal income tax returns, he thereby represented
that they were "ordinary and necessary" business expenses.
Thus, those same expenses were also, in the language of the
policies, "usual and customary," "incurred on a regular basis,"
and "essential to the established business operation." The dis-
trict court held that the administrator, in adopting this inter-
pretation, did not abuse her discretion.

   We affirm. Even though we recognize that the policy lan-
guage, defining those expenses that may be subtracted from
gross income to arrive at predisability earnings, is somewhat
confusing and, to be sure, needlessly verbose, we conclude
that the administrator’s interpretation was a reasonable one.

                               I

   Dr. Fortier formed a medical practice in 1994, which, by
2002, had grown to include four physicians and a nurse. As
a result of a dispute with his co-owners, however, he left that
practice and formed a new one, beginning it on October 1,
2002. In doing so, Fortier incurred substantial start-up
expenses, as well as attorneys fees in prosecuting litigation
with his former partners.
4             FORTIER v. PRINCIPAL LIFE INSURANCE
    On his federal income tax return for 2003, Dr. Fortier
reported gross income in the amount of $975,511 and busi-
ness expenses in the amount of $910,168 (which included his
start-up and litigation expenses), resulting in net income of
$65,343. For 2004, he reported gross income of $997,647 and
business expenses of $825,006 (again including start-up and
litigation expenses), resulting in net income of $172,641.

   In early 2005, Fortier became medically disabled, and on
February 1, 2005, he closed his practice. He applied for short-
term and long-term disability benefits from Principal Life
under the group policies issued to his practice, which covered
him and his employees. He also applied for disability benefits
under two individual disability policies issued to him by
Unum Life Insurance Company. Principal Life immediately
began to provide Fortier with short-term disability benefits.
Two months later, however, when Fortier began receiving
$15,470 in benefits from Unum, Principal Life ceased making
any more payments under its group policies because Fortier’s
predisability income was not sufficiently large to exceed the
limits stated in the policies.

   Dr. Fortier pursued administrative review as provided by
the group policies, claiming that Principal Life had improp-
erly calculated his predisability income because the adminis-
trator reduced his gross income by the "unusual and non-
customary reorganizational business expenses." If these "ex-
traordinary" expenses were taken out of the calculus, Fortier’s
income would have been, as he claimed, $48,913 per month.
With this level of predisability income, he would have been
entitled to the maximum benefits under the Principal Life pol-
icies of $1,500 per week for short-term benefits and $6,000
per month for long-term benefits, even while receiving
$15,470 in benefits from Unum.

   In a letter dated May 17, 2006, Principal Life denied For-
tier’s claim for benefits, explaining:
         FORTIER v. PRINCIPAL LIFE INSURANCE             5
The calculation of Dr. Fortier’s Predisability Earn-
ings was based on the income and expenses included
in his 2003 and 2004 Income Tax Returns. Accord-
ing to the Internal Revenue Service, to be deductible,
a business expense must be both ordinary and neces-
sary. An ordinary expense is one that is common and
accepted in trade or business. A necessary expense
is one that is helpful and appropriate for trade or
business. An expense does not have to be indispensi-
ble to be considered necessary.

Based on the description above, by including the
expenses noted on Dr. Fortier’s 2003 and 2004 Fed-
eral Income Tax Returns as deductible business
expenses, he is representing that these expenses are
both ordinary and necessary. We consider the
expenses as usual and customary business expenses
for the purpose of the determination of Pre-
Disability Earnings for Long-Term Disability bene-
fits offered under the group policy.

In your letter of January 6, 2006, you dispute Princi-
pal Life Insurance Company’s application of the
meaning of "ordinary and necessary" as per the
Internal Revenue Service’s definitions. Additionally,
you requested [P]rincipal Life Insurance Company
evaluate Dr. Fortier’s expenses without regard to
whether or not they were deductible for tax pur-
poses. Principal Life Insurance Company disagrees
with your position. The policy text describing
Weekly [and Monthly] Earnings[ ] is clear and refers
to the deductibility for Federal Income Tax purposes.
There is clear nexus in the policy between the policy
definitions and Internal Revenue Service terminol-
ogy. Moreover, the Internal Revenue Service defini-
tion of "ordinary and necessary" encompasses
"usual, customary, and regular."
6             FORTIER v. PRINCIPAL LIFE INSURANCE
   Fortier commenced this action under ERISA, 29 U.S.C.
§ 1132(a)(1)(B), claiming short-term benefits of $1,500 per
week and long-term benefits of $6,000 per month. He alleged
that in calculating his predisability income for the purpose of
determining benefits, Principal Life "failed to conduct a rea-
soned and principled review of [his] claim for disability bene-
fits."

   On cross-motions for summary judgment, the district court
entered judgment on March 30, 2010, in favor of Principal
Life. The court applied the factors relevant to judicial review
of an administrator’s exercise of discretion, as set forth in
Booth v. Wal-Mart Stores, Inc. Assocs. Health & Welfare
Plan, 201 F.3d 335 (4th Cir. 2000), "weigh[ed] them
together," and concluded that Principal Life did not abuse its
discretion. From the district court’s judgment, Fortier filed
this appeal.

                               II

   On appeal, Dr. Fortier contends that the administrator
abused her discretion in construing the group policies’ defini-
tion of "Predisability Earnings" to mean that Principal Life
should simply use the amount of net income from his federal
tax returns for the two years prior to his disability and thereby
ignore other language included in the definition. This
approach, he argues, allowed the administrator to deduct
unusual and non-customary reorganization expenses and liti-
gation expenses from his predisability gross earnings, result-
ing in the denial of benefits. Although Fortier was able to
reduce his taxable income significantly by deducting on his
2003 and 2004 tax returns extraordinary, one-time expenses
for the start-up of his medical practice and litigation expenses,
he argues that those expenses should not, in calculating his
predisability income, have been deducted as "business
expenses" as that term is used in the group disability policies.
He maintains that the unambiguous language of Principal
Life’s policies includes specific criteria for the deduction of
              FORTIER v. PRINCIPAL LIFE INSURANCE               7
business expenses, which include not only the criterion that an
expense be deductible for federal income tax purposes but
also other explicitly stated criteria that the administrator did
not take into account.

   Had the administrator considered all relevant criteria, For-
tier claims, she could not have concluded that his extraordi-
nary, one-time start-up expenses and litigation expenses were,
as required by the policies, "incurred on a regular basis" and
"essential to the established business operation" of his medi-
cal practice. He argues that expenses "incurred on a regular
basis" means that they must be incurred "frequently and repet-
itively" and that expenses "essential to an established busi-
ness" exclude expenses for a start-up business. Thus, he
concludes, not all tax deductible expenses must be included
in the calculation of the policy-defined business expenses, as
the administrator determined.

   The parties agree that the administrator of the Principal
Life disability policies is given discretion to construe the poli-
cies and to determine eligibility for benefits. The policies pro-
vide:

    [Principal Life] has complete discretion to construe
    or interpret the provisions of this group insurance
    policy, to determine eligibility for benefits, and to
    determine the type and extent of benefits, if any, to
    be provided. The decisions of [Principal Life] in
    such matters shall be controlling, binding, and final
    as between [Principal Life] and persons covered by
    this Group Policy . . . .

Thus, a court reviewing the administrator’s decision must
review only for abuse of discretion and therefore "must not
disturb the . . . decision if it is reasonable, even if the court
itself would have reached a different conclusion." Haley v.
Paul Revere Life Ins. Co., 77 F.3d 84, 89 (4th Cir. 1996).
8                FORTIER v. PRINCIPAL LIFE INSURANCE
Judicial review for abuse of discretion is guided by consider-
ation of the eight nonexhaustive Booth factors:

        (1) the language of the plan; (2) the purposes and
        goals of the plan; (3) the adequacy of the materials
        considered to make the decision and the degree to
        which they support it; (4) whether the fiduciary’s
        interpretation was consistent with other provisions in
        the plan and with earlier interpretations of the plan;
        (5) whether the decisionmaking process was rea-
        soned and principled; (6) whether the decision was
        consistent with the procedural and substantive
        requirements of ERISA; (7) any external standard
        relevant to the exercise of discretion; and (8) the
        fiduciary’s motives and any conflict of interest it
        may have.

Booth, 201 F.3d at 342–43.

   In reviewing the administrator’s decision in this case, the
district court concluded that Booth factors (1) (the language
of the plan); (2) (the purposes and goals of the plan); (3) (the
adequacy of the materials considered to make the decision
and the degree to which they support it); and (4) (whether the
fiduciary’s interpretation was consistent with other provisions
in the plan) "strongly evidence[d] the reasonableness of [the
administrator’s] interpretation." The court found further that
Booth factor (8) (conflict of interest) did "not render [the
administrator’s] decision unreasonable."1
    1
    The parties agree that because Principal Life served in the dual role of
both evaluating claims and paying claims, it operated under a conflict of
interest. But neither party pointed to any evidence of how the conflict of
interest affected the interpretation made by the administrator in this case.
Moreover, neither party undertook the analysis that the Supreme Court
required in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 108
(2008), inquiring whether the conflict was significant given "the circum-
stances of the particular case." Absent any evidence in the record that
Principal Life’s denial of benefits was a product of its financial interest,
rather than its genuine and reasoned judgment, we can hardly place deter-
minative weight on that factor in reviewing the administrator’s decision.
                 FORTIER v. PRINCIPAL LIFE INSURANCE                      9
   We review the district court’s decision de novo, employing
the same standard that governed the district court’s review of
the plan administrator’s decision. Champion v. Black &
Decker (U.S.) Inc., 550 F.3d 353, 360 (4th Cir. 2008).

                                    III

   The parties’ dispute centers on the group policies’ defini-
tion of "Predisability Earnings." The administrator applied the
policies’ definition to conclude that Fortier’s predisability
earnings were $9,916 per month, which was insufficient to
entitle him to benefits in light of the $15,470 per month he
was receiving from Unum.2 Fortier, applying the same defini-
tion, argues that his predisability earnings were $48,913,
which, the parties acknowledge, would afford him maximum
benefits under Principal Life’s group disability policies.

   Principal Life’s group disability policies provide for a dis-
ability benefit, not exceeding $1,500 per week on the short-
term policy and $6,000 per month on the long-term policy,
based on 60% of the member’s "Predisability Earnings." "Pre-
disability Earnings" are those earnings "in effect prior to the
  2
    The administrator’s calculation began with gross income and business
expenses that Fortier reported on his 2003 and 2004 tax returns, which,
when averaged, came to $9,916 per month. She took 60% of that number
to arrive at the monthly benefit of $5,949.60. Then, applying the limitation
relevant to when the insured receives "payments attributable to individual
disability policies," such as the $15,470 Fortier was receiving from Unum,
she concluded Fortier was entitled to no benefits. The limitation provides
that "[i]n no event will the sum of amounts payable" for (1) group benefits
under the Principal Life policies ($5,949.60) and (2) "payments attribut-
able to individual disability insurance policies" ($15,470) "exceed 100%
of Predisability Earnings" ($9,916). "In the event the Member’s total
income from all sources listed above exceeds 100% of Predisability Earn-
ings, the benefits under this Group Policy will be reduced by the amount
in excess of 100% of Predisability Earnings." Since Fortier’s income from
all sources ($21,419.60) would exceed his predisability earnings ($9,916)
by $11,503.60, the benefits under the Principal Life policies are reduced
by that amount, leaving him entitled to zero benefits.
10            FORTIER v. PRINCIPAL LIFE INSURANCE
date Disability begins." The policies define those earnings for
purposes of the issues here as follows:

     Monthly Earnings on any date are based on an aver-
     age of the following earnings as reported for Federal
     Income Tax purposes for the last two calendar
     year(s), assuming the owner meets all eligibility
     requirements:

         a.   the Member’s share (based on owner-
              ship or contractual agreement) of the
              gross revenue or income earned by the
              Policyholder, including income earned
              by the Member and others under the
              Member’s supervision or direction; less

         b.   the Member’s share (based on owner-
              ship or contractual agreement) of the
              usual and customary unreimbursed
              business expenses of the Policyholder
              which are incurred on a regular basis,
              are essential to the established business
              operation of the Policyholder, are
              deductible for Federal Income Tax pur-
              poses, and do not exceed the expenses
              before Disability began.

This language, for purposes of our discussion, provides essen-
tially that Fortier’s predisability monthly earnings are deter-
mined by subtracting from his gross earnings as reported for
federal income tax purposes his business expenses as defined
in subsection (b) of the policies’ definition of predisability
earnings. The business expenses are there defined in part as
(1) "the usual and customary unreimbursed business
expenses," (2) "which are incurred on a regular basis," (3)
"are essential to the established operation of the Policy-
holder," and (4) "are deductible for Federal Income Tax pur-
poses." The additional criterion that the expense not "exceed
              FORTIER v. PRINCIPAL LIFE INSURANCE              11
the expenses before Disability began" is inapplicable to this
discussion, as we explain in Part IV, below.

   In calculating Fortier’s predisability earnings, the adminis-
trator used predisability business expenses that Fortier
deducted on his federal income tax returns for the tax years
2003 and 2004. She concluded that all the attributes described
in the policies’ definition of predisability business expenses,
even though stated distinctly, are in substance no more than
relevant restatements of the attributes that make the expenses
deductible for tax purposes. Therefore, she used the business
expenses claimed by Fortier on his tax returns in her calcula-
tions. The attributes given in the policy to predisability busi-
ness expenses—that they be "usual and customary," "incurred
on a regular basis," and "essential to the established business
operation"—merely expressed, as the administrator con-
cluded, "attributes of expenses that have traditionally been
considered in determining deductibility under [I.R.C.
§ 162(a)]." Section 162(a) allows taxpayers to deduct "all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business." The admin-
istrator thus noted that there is a "clear nexus" between the
"ordinary and necessary" language contained in I.R.C.
§ 162(a) and the various phrases contained in subsection (b)
of the policies’ definition of monthly earnings.

   Fortier argues reasonably that because business expenses
for purposes of the policies’ calculations must meet both the
criterion of being deductible under the Internal Revenue Code
and the other criteria stated separately in subsection (b), the
other separately stated criteria must be further limitations, dis-
tinguishing expenses deductible for tax purposes from busi-
ness expenses defined in the policies for determining monthly
earnings.

   It is not clear why the policies chose to add the first three
criteria—"usual and customary," "incurred on a regular
basis," and "essential to the established business operation"
12            FORTIER v. PRINCIPAL LIFE INSURANCE
—when the phrase "deductible for Federal Income Tax pur-
poses" could arguably be the only one needed to accomplish
the policies’ purposes under the administrator’s interpretation.
The overall policy language, however, taken in context,
would seem to permit the administrator reasonably to con-
clude that the policies’ definition of business expenses should
be read in light of I.R.C. § 162(a). This conclusion is indi-
cated by two significant references in the policies’ language
to the Internal Revenue Code.

   First, "Monthly Earnings" as used in the policies must be
based on data reported by Fortier on his federal income tax
returns. This overarching requirement in the policies would
seem to be vital to any disability plan interested in using accu-
rate data because a taxpayer’s incentives are to reduce his
income by deducting all legitimate business expenses from
gross income. Thus, by defining predisability expenses in
terms of tax reported data, the policies can expect greater
accuracy when determining predisability income. This prefa-
tory restriction in the definition of "Predisability Earnings"
accordingly supports the administrator’s conclusion that there
is a "clear nexus" between the criteria for reporting income
and expenses on tax returns and the criteria for defining
income and expenses under the group policies.

   The second reference to federal income tax criteria in the
policies is provided in subsection (b), which includes, as part
of the definition of business expenses, those expenses that are
"deductible for Federal Income Tax purposes." Neither party
has conducted an analysis of the Internal Revenue Code to
determine whether there are deductible business expenses that
would not meet the other criteria set forth in subsection (b) of
the policies. Principal Life nonetheless contends that the other
criteria in subsection (b) are merely reiterations of the rele-
vant criteria for federal tax deductibility, providing example
restrictions or clarifications of what was intended in the poli-
cies.
              FORTIER v. PRINCIPAL LIFE INSURANCE             13
   This is not an irrational position. For example, the Internal
Revenue Code provides that to be deductible, a business
expense must be "ordinary and necessary." The Supreme
Court has construed "ordinary" to be synonymous with "nor-
mal, usual, or customary"—terms that the disability policies
also use. See Deputy v. du Pont, 308 U.S. 488, 495 (1940);
see also Danville Plywood Corp. v. United States, 899 F.2d
3, 6-7 (Fed. Cir. 1990).

   In the same vein, the administrator could conclude that the
word "essential," as contained in the policies, is a synonym of
the tax term "necessary." See Merriam-Webster’s Collegiate
Dictionary 427 (11th ed. 2007) (defining "essential" in rele-
vant part, as "of the utmost importance: basic, indispensible,
necessary"); Noland v. Comm’r, 269 F.2d 108, 111 (4th Cir.
1959) ("[T]hat expense which is essential to the continuance
of [an individual’s] employment is deductible").

   While Fortier does not take real issue with the comparison
of "necessary" and "essential," he does note that the policy
requires that an expense be essential to "the established busi-
ness operation of the Policyholder." Because the expenses
incurred by him in 2003 and 2004 were in large part start-up
expenses for his new medical practice, he argues that the term
"established" restricts the expenses that may be used in deter-
mining predisability earnings. While this argument is not at
all unreasonable, it was nonetheless also reasonable for the
administrator to have concluded that the entire phrase reiter-
ates the requirement of I.R.C. § 162(a) that business expenses
be "necessary . . . in carrying on any trade or business" and
that the word "established" merely functions to underscore
that "not every income-producing and profit-making endeavor
constitutes a trade or business. . . . [T]o be engaged in a trade
or business, the taxpayer must be involved in the activity with
continuity and regularity." Comm’r v. Groetzinger, 480 U.S.
23, 35 (1987).

  Finally, the policies’ requirement that expenses be "in-
curred on a regular basis" can be construed to restate the
14            FORTIER v. PRINCIPAL LIFE INSURANCE
requirements of I.R.C. § 162(a) inasmuch as the term "regu-
lar," even though having several possible meanings, does
include the meaning "ordinary." While the phrase "on a regu-
lar basis" might, at first blush, be thought to mean "at regular
intervals and repeatedly," as Fortier claims, it can also mean
"regularly incurred," which more readily could be taken to
mean "ordinarily incurred." See Garner’s Dictionary of Legal
Usage 104 (3d ed. 2011) (noting that "updated on a regular
basis" is grammatically identical to "regularly updated"); see
also The Random House Dictionary of the English Language
1624 (2d ed. 1987) (defining "regular" and "regularly" to
include both "at regular times or intervals" or simply "usu-
ally" or "ordinarily"). It is significant to observe that were
Fortier’s interpretation of "on a regular basis" to be adopted
by the administrator, it could become virtually impossible to
distinguish includable and excludable expenses. For instance,
if Fortier were to use a light bulb in his business that had a
ten-year life, would the expense for that light bulb be "in-
curred on a regular basis" as he uses the term, i.e. "repeat-
edly"? Or if Fortier purchased a permanent piece of
equipment that he was amortizing over the period of, say,
seven years, would the one-time purchase be excludable as
not "incurred on a regular basis," even though he claimed a
deduction for a portion of the equipment’s cost each year?

   Even though the administrator’s interpretation probably
renders much of subsection (b)’s definition of business
expenses repetitive and superfluous, it is nonetheless, if not
the best, at least a reasonable solution to an interpretive
dilemma. For example, it is unavoidable to conclude that the
phrase "usual and customary" does not have a distinct mean-
ing from I.R.C. § 162(a)’s "ordinary and necessary," or that
"essential" does not have a distinct meaning from "necessary."
And if that is true, then the other phrases, while not tied as
closely to the Internal Revenue Code, would have to be sub-
jected to some test to determine whether they are to be given
independent meaning while "usual and customary" and "es-
sential" would not be given an independent meaning. With the
              FORTIER v. PRINCIPAL LIFE INSURANCE             15
various phrases thus being subject to amorphous tests to
resolve their multiple meanings, we cannot conclude that
Principal Life’s take on the policy was an unreasonable one.

   Because the policy entrusts Principal Life with "complete
discretion" to resolve ambiguities and to determine benefits,
we will respect its reasonable interpretation of the language
when calculating Fortier’s predisability earnings.

                               IV

   Dr. Fortier contends additionally that Principal Life’s inter-
pretation is erroneous based on the last clause in subsection
(b) of the policies’ definition of business expenses, which pro-
vides that business expenses deducted from predisability
income must "not exceed the expenses before Disability
began."

   This argument, however, provides Fortier with no assis-
tance because it is readily apparent that both the meaning and
context of the clause make it inapplicable to the circum-
stances of this case. First, it makes no sense to ask whether
predisability expenses "exceed the expenses before Disability
began." Such a statement is meaningless and contributes noth-
ing to the discussion. Read in context, it is apparent that the
clause is a part of the definition of "Monthly Earnings" used
for other purposes in the policies. The "Monthly Earnings"
definition is textually applied to define both "Current Earn-
ings" and "Predisability Earnings." But "Current Earnings"
are relevant only to the determination of benefits for a mem-
ber who is "working during a period of Disability," which is
not Fortier’s circumstance. In such a case the member’s
monthly earnings are determined by looking at his gross reve-
nue and deducting those expenses that satisfy the other
criteria of business expenses as well as the criterion that those
expenses, while the member is working, "do not exceed the
expenses before Disability began." Thus, the limitation
imposed by the last clause of subsection (b) obviously applies
16               FORTIER v. PRINCIPAL LIFE INSURANCE
only when determining "Current Earnings," an issue not rele-
vant to the case before us.

                               ***

   Because we conclude that Principal Life’s denial of Dr.
Fortier’s claims for short-term and long-term disability bene-
fits was based on a reasonable reading of Principal Life’s dis-
ability policies, we affirm the judgment of the district court.

                                                       AFFIRMED

FLOYD, Circuit Judge, dissenting:

     I respectfully dissent.

   We have long held that, in the ERISA context, "the plain
language of an ERISA plan must be enforced in accordance
with ‘its literal and natural meaning.’" United McGill Corp.
v. Stinnett, 154 F.3d 168, 172 (4th Cir. 1998) (quoting Health
Cost Controls v. Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997)).
"[W]e enforc[e] the plan’s plain language in its ordinary
sense." Bynum v. Cigna Healthcare of N.C., Inc., 287 F.3d
305, 313 (4th Cir. 2002) (second alteration in original) (quot-
ing Wheeler v. Dynamic Eng’g, Inc., 62 F.3d 634, 638 (4th
Cir. 1995) (internal quotation marks omitted), abrogated on
other grounds by Carden v. Aetna Life Ins. Co., 559 F.3d 256
(4th Cir. 2009).

   "An administrator’s discretion never includes the authority
‘to read out unambiguous provisions’ contained in an ERISA
plan, and to do so constitutes an abuse of discretion." Black-
shear v. Reliance Standard Life Ins. Co., 509 F.3d 634, 639
(4th Cir. 2007) (quoting Colucci v. Agfa Corp. Severance Pay
Plan, 431 F.3d 170, 176 (4th Cir. 2005). "[E]ven as an ERISA
plan confers discretion on its administrator to interpret the
plan, the administrator is not free to alter the terms of the plan
or to construe unambiguous terms other than as written."
              FORTIER v. PRINCIPAL LIFE INSURANCE            17
Colucci, 431 F.3d at 176. Nevertheless, Principal Life ignores
the plain, literal, natural, ordinary, and unambiguous meaning
of the language of the short term disability (STD) and long
term disability (LTD) policies. Instead, it refers to language
from the Internal Revenue Code to determine what the poli-
cies’ language actually means. Because this interpretation is
unreasonable, we ought not affirm its decision.

                               I.

    As noted by the majority, as a result of beginning a new
medical practice in 2002, Fortier incurred large start-up and
litigation expenses for which he claimed federal income tax
deductions on his 2003 and 2004 tax returns. He became dis-
abled in 2005. The parties concur that Fortier is disabled, but
disagree on how the policies provide to calculate his disability
benefits.

   The determination of the amount to which Fortier is enti-
tled depends on his predisability earnings for 2003 and 2004.
The following section of the LTD policy contains the con-
tested language:

    Monthly Earnings on any date are based on an aver-
    age of the following earnings as reported for Federal
    Income Tax purposes for the last two calendar
    year(s), assuming the owner meets all eligibility
    requirements:

         a.   the Member’s share (based on owner-
              ship or contractual agreement) of the
              gross revenue or income earned by the
              Policyholder, including income earned
              by the Member and others under the
              Member’s supervision or direction; less

         b.   the Member’s share (based on owner-
              ship or contractual agreement) of the
18            FORTIER v. PRINCIPAL LIFE INSURANCE
              usual and customary unreimbursed
              business expenses of the Policyholder
              which are incurred on a regular basis,
              are essential to the established business
              operation of the Policyholder, are
              deductible for Federal Income Tax pur-
              poses, and do not exceed the expenses
              before Disability began.

The STD policy is identical to the LTD policy, except that the
STD policy refers to "Weekly Earnings," as opposed to
"Monthly Earnings."

   Both parties agree that, to calculate Fortier’s predisability
earnings, Principal Life must deduct Fortier’s "usual and cus-
tomary unreimbursed business expenses" from his gross pre-
disability income. The gravamen of the dispute, however, lies
in the parties’ interpretations of subsection (b).

   Fortier contends that the policies set forth five distinct and
discrete tests that an item must meet before it can be deducted
from his gross predisability income as a "usual and customary
. . . business expense[ ]." According to Fortier, for a "usual
and customary . . . business expense[ ]" to be deducted from
his gross disability income, the expense must (1) be "unreim-
bursed," (2) be "incurred on a regular basis," (3) be "essential
to the established business operation of the Policyholder," (4)
be "deductible for Federal Income Tax purposes," and (5) "not
exceed the expenses before Disability began." Fortier avows
that the start-up and litigation expenses that he deducted on
his 2003 and 2004 tax returns were neither "incurred on a reg-
ular basis" nor "essential to [his] established business opera-
tion" when those unambiguous phrases are ascribed their
plain, literal, natural, and ordinary meaning. As such, accord-
ing to Fortier, those expenses ought not be deducted from his
gross predisability income.

   To the contrary, Principal Life argues that the language of
the Internal Revenue Code controls the definition of what
              FORTIER v. PRINCIPAL LIFE INSURANCE             19
constitutes a "usual and customary . . . business expense[ ]."
Section 162(a) of the Internal Revenue Code "allow[s] as a
[tax] deduction all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade
or business." I.R.C. § 162(a). Principal Life maintains that the
policies’ stated requirements that the "usual and customary
. . . business expenses" must be "unreimbursed," "incurred on
a regular basis," and "essential to the established business
operation of the Policyholder" are all simply another way of
stating that the expenses must be "deductible for Federal
Income Tax purposes." Principal Life contends that the fifth
factor—"not exceed the expenses before Disability
began"—is inapplicable in regards to what expenses are
deductible. After much reflection, I am unable to agree that
Principal Life’s interpretation is reasonable.

   To accept Principal Life’s position, I would be required to
think that under the plain, literal, natural, ordinary, and unam-
biguous meaning of the language of subsection (b), to deter-
mine Fortier’s predisability earnings, Principal Life must take
Fortier’s predisability income and deduct whatever expenses
were deductible for Federal Income Tax purposes, as long as
those expenses do not exceed Fortier’s expenses before his
disability began. I would further be required to think that the
plain, literal, natural, ordinary, and unambiguous meaning of
the language of subsection (b) does not require that I interpret
the term "and" in a conjunctive nature and, thus, to think that
the expenses are not required to meet each and every one of
the other requirements of being (1) "unreimbursed," (2) "in-
curred on a regular basis," and (3) "essential to the established
business operation of the Policyholder," although that is
exactly what the policies plainly and literally state.

   I cannot agree with Principal Life’s contention that, in
effect, the Internal Revenue Code ought to be incorporated
into the policies by reference. First, I am unpersuaded that the
two references to "Federal Income Tax purposes" somehow
reasonably yield such a result. The policies could not be
20            FORTIER v. PRINCIPAL LIFE INSURANCE
clearer that, to determine Fortier’s predisability earnings,
Principal Life was required to take Fortier’s gross income, as
reported for Federal Income Tax purposes, and subtract from
that amount "the usual and customary unreimbursed business
expenses of the Policyholder which are incurred on a regular
basis, are essential to the established business operation of the
Policyholder, are deductible for Federal Income Tax pur-
poses, and do not exceed the expenses before Disability
began." The first reference to "Federal Income Tax purposes"
plainly indicates that Principal was to look to Fortier’s tax
returns to determine his gross predisability income. The sec-
ond reference to "Federal Income Tax purposes" just as
plainly states that Principal was also to look to Fortier’s tax
returns to determine if, in addition to the other requirements,
his business expenses were "deductible for Federal Income
Tax purposes." I am of the opinion that no other interpretation
of subsection (b) is reasonable when the unambiguous lan-
guage of the policies is given its plain, literal, natural, and
ordinary meaning.

   Second, I cannot concur that, although the policies use the
term "essential" as one of the tests an expense must meet to
be properly deducted from Fortier’s gross predisability
income, given the plain meaning of the language of subsec-
tion (b), Fortier ought to have known that what the policies
plainly meant was that the expense must be "necessary." Nor
can I concur that, because "essential" means "necessary," and
because "necessary" is a term employed by the Internal Reve-
nue Code in reference to expenses deductible for "Federal
Income Tax purposes," Fortier should have known that the
policies meant that anything deducted on his tax returns
would be deducted from his gross predisability income, and
would ultimately reduce his disability benefits.

   Third, I am unconvinced that, although the policies use the
term "incurred on a regular basis" as one of the tests that an
expense must meet to be deducted properly from Fortier’s
gross predisability income, given the plain meaning of the
              FORTIER v. PRINCIPAL LIFE INSURANCE             21
language of subsection (b), Fortier ought to have known that
term could be interpreted to restate a requirement of I.R.C.
§ 162(a), inasmuch as one of the meanings of the term "regu-
lar" is "ordinary." Nor am I convinced that, because "regular"
means "ordinary" and "ordinary" is a term employed by the
Internal Revenue Code in reference to expenses deductible for
"Federal Income Tax purposes," Fortier should have known
that what the policies plainly meant was that anything he
deducted on his tax returns would be deducted from his gross
predisability income, and would, thus, ultimately reduce his
disability benefits.

   Fourth, I will not consent to the contention that, although
the policies use the term "usual and customary" to describe
expenses that can be properly deducted from Fortier’s gross
predisability income, given the plain meaning of the language
of subsection (b), Fortier ought to have known that what the
policies plainly meant was that the expenses must be "ordi-
nary and necessary." Nor can I concur that, because "usual
and customary" means "ordinary and necessary," and because
"ordinary and necessary" is a term employed by the Internal
Revenue Code in reference to expenses deductible for "Fed-
eral Income Tax purposes," Fortier should have known that
what the policies plainly meant was that anything he deducted
on his tax returns would be deducted from his gross predisa-
bility income, and would, thus, ultimately reduce his disabil-
ity benefits.

    Fifth, I disagree that Principal Life’s decision to incorpo-
rate the Internal Revenue Code into the language of the poli-
cies, and in doing so, to deduct Fortier’s large start-up and
litigation expenses in calculating his disability benefits, is in
keeping with the goal of subsection (b) of the policies. The
purpose of calculating the predisability earnings is to make an
accurate determination of those earnings so that the claimant
can be fairly compensated for his disability. Deducting For-
tier’s large start-up and litigation expenses, however, skews
his earnings markedly.
22            FORTIER v. PRINCIPAL LIFE INSURANCE
   Consequently, I think that Principal Life abused its discre-
tion in failing to interpret the unambiguous language of sub-
section (b) in its plain, literal, natural, and ordinary sense.
Furthermore, its interpretation contravenes the clear purpose
of subsection (b).

                               II.

   The weakest of Principal Life’s assertions is that Fortier
"wants it both ways" by claiming large business expenses to
reduce his federal income tax liability while, at the same time,
minimizing his business expenses in an attempt to maximize
his disability benefits. It is axiomatic that the goal of subsec-
tion (b) of these ERISA policies and the Internal Revenue
Code are entirely different. To somehow surmise that the
goals of Congress in drafting the Internal Revenue Code and
the goals of Principal Life in drafting subsection (b) are in any
manner similar strains the bounds of credulity.

   As I noted above, the goal of subsection (b) of the policies
is to make an accurate determination of the claimant’s regular
predisability income. But the goal of the Internal Revenue
Code is to raise revenue as well as to encourage various pol-
icy goals. Hence, it is perfectly proper for Fortier to "want[ ]
it both ways" given the differences between the purpose of the
disability policies and those of the Internal Revenue Code.

                              III.

   Finally, in interpreting the fifth factor of subsection
(b)—that the expenses deducted from Fortier’s predisability
earnings must "not exceed the expenses before Disability
began"— I cannot agree with Fortier that this provision means
that the "[a]verage monthly expenses for the two calendar
years before [the] disability began cannot exceed those
incurred during the month before the disability began."
Instead, I am persuaded by the reasoning of the district court
that Fortier’s interpretation is inconsistent with the policies’
              FORTIER v. PRINCIPAL LIFE INSURANCE              23
requirement that Principal Life must calculate Fortier’s earn-
ings by reference to the average earnings for the last two cal-
endar years. Consequently, I would hold that Principal Life’s
interpretation of this provision as a limitation on post-
disability expenses is reasonable.

                               IV.

   In sum, Principal Life’s interpretation of subsection (b)
does not reflect the plain language of the policies. And,
because its interpretation does not reflect the plain language
of the policies, it is not reasonable. And, because it is not rea-
sonable, it is an abuse of discretion. Therefore, we ought not
put our imprimatur on it. Accordingly, I must respectfully dis-
sent.