Court Opinion

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Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

6-13-2006

Havens v. Cont Cslty Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 05-3075

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                                                            NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT

                                     No. 05-3075

                                  WILLIAM HAVENS,
                                              Appellant

                                         v.

                          CONTINENTAL CASUALTY CO.,
                                   (CNA)

            APPEAL FROM THE UNITED STATES DISTRICT COURT
              FOR THE EASTERN DISTRICT OF PENNSYLVANIA
                             D.C. Civil 04-cv-03268
                 District Judge: The Honorable Juan R. Sanchez

                               Argued: May 11, 2006

              Before: BARRY, SMITH and TASHIMA,* Circuit Judges

                            (Opinion Filed June 13, 2006)

Donald E. Havens, Esq. (Argued)
8246 West Chester Pike
Upper Darby, PA 19082

Counsel for Appellant

  *
   The Honorable A. Wallace Tashima, Senior Circuit Judge, United States Court of
Appeals for the Ninth Circuit, sitting by designation.
Michael J. Burns, Esq. (Argued)
Christie, Pabarue, Mortensen & Young
1880 John F. Kennedy Boulevard
10th Floor
Philadelphia, PA 19103

Counsel for Appellee

                                       OPINION

BARRY, Circuit Judge

       William Havens’s insurer, the Continental Assurance Company (“Continental”),

denied him long-term disability based on a finding that he was not prevented from

engaging in “any occupation.” Havens brought suit and the District Court found for

Continental. Because we conclude that that determination was incorrect, we will reverse

and remand with instructions to enter judgment for Havens.

                                           I.

       Havens worked as a regional property inspector for the Continental Financial

Corporation.1 He suffers from diabetes and a host of related ailments, including problems

with his retinas and bladder. He had his gall bladder removed in 1998 and had surgery in

1987 to remove neurofibromas from his neck. On October 15, 1999, while on a business

   1
     Continental Assurance Company (the defendant) and Continental Casualty (the name
on the caption of the case) are both members of the same corporate family as Havens’s
employer.
                                           2
trip, he suffered an injury to his back when a bed at a Ramada Inn collapsed beneath him.

Since then, he has had serious pain in his lower back and right leg. He has damage to the

nerve roots between the L4 and S1 vertebrae of his spine, a condition medically known as

radiculopathy and often caused by a violent impact or the reduced blood flow associated

with diabetes.

       Havens consulted with numerous doctors, most extensively with Dr. Leon DeMasi

at the Crozer Keystone Health System Centers For Occupational Health. Dr. DeMasi’s

diagnosis was “[d]egenerative joint disease and degenerative disc disease of the

lumbosacral spine with radiculopathy.” Dr. DeMasi indicated an increasingly stringent

set of activity restrictions, ultimately settling on (handwritten portions in bolded italics):

       ”No bending, squatting, crawling kneeling
       Change sitting standing position frequently as needed
       No lifting over 10 pounds
       Driving permitted Limited     Frequent Rest Breaks           for 4 hours
       Pushing pulling up to 10 pounds
       Climbing/walking stairs permitted N Ladders/Roofs
       Other Driving - lumbar support

       Other doctors at Crozer Keystone who treated Havens included a neurologist, a

rheumatologist, and an endocrinologist. Dr. Richard Dillon, the endocrinologist, did not

believe that Havens’s diabetes was significantly affecting his health, thought that

neurofibroma might be a cause for his back pain, and doubted that the 1999 injury

significantly exacerbated the back pain. He recommended back surgery, though he said

that “most commonly patients with back disorders do well to ignore them and continue on

with their job as best possible and that focusing on the problem may aggravate it.”

                                               3
Havens also saw Dr. Andrew Freese, a neurologist, who ordered and evaluated multiple

MRIs of Havens’s lumbar spine, noting injured spinal discs, impingement on nerve roots,

and evident pain.

       Dr. Marc Cohen conducted a Functional Capacity Evaluation (“FCE”), on which

Havens scored no higher than “Light” on any of the lifting tasks, and “Medium” on the

carrying task. Dr. Cohen’s cover letter read:

       “RELIABILITY AND CONSISTENCY OF EFFORT
               . . . Mr. Havens gave a reliable effort . . .
       FUNCTIONAL ABILITIES
               Mr. Haven’s demonstrated abilities meet specified job demands in
       the following categories: High Lift, Mid Lift, Walk, Carry - 10 Lb, Carry 20
       -Lb, Carry - 50 Lb, Balance, Kneel, Reach to Front, Handling, Bi-Manual
       Handling, Bi-Manual Fingering.
       RESTRICTIONS AND MODIFICATIONS
               Mr. Havens is unable to meet job demands in the following
       categories: Low Lift, Stoop, Climb Stairs, prolong sitting and standing for
       longer than 30 minutes at a time.
       RECOMMENDATIONS
               The patient is restricted from sitting, driving, standing and
       ambulation for periods no longer than 30 minutes for each position. The
       patients work restriction is limited to a maximum of 4 hours per day.
       Testing has demonstrated the patient’s ability to use short bursts of strength,
       but an inability to sustain longer periods of physical activity. I would
       recommend a reconditioning program to address the patient’s
       cardiovascular insufficiency, proprioception and muscular endurance.”

       As part of related workers’ compensation litigation, Havens saw Dr. Menachem

Meller for two Independent Medical Evaluations. On the first, Dr. Meller concluded,

“Although[] he does have severe significant disabling problems with regard to his back,

his bladder, his leg, and his neck, none of these things are in any way related to his work

injury.” Dr. Meller signed an Affidavit of Recovery, stating that Havens had “fully

                                             4
recovered” from “Lumbar spasm and strain / Right L5 Radiculopathy.” On the second,

Dr. Meller called the “work related injury . . . fully and completely resolved,” and stated,

“If not for his unrelated and pre-existing medical conditions, he would be able to

[perform the tasks associated with his previous job].”

       Havens’s family physician, Dr. Brian Boucher, responded to a one-page, three-

question form (a “Functional Assessment Tool”) asking whether Havens was “currently

capable of performing work at this time which is primarily seated in nature, however

allows the flexibility to stand when needed and requires lifting less than 10#?” Dr.

Boucher checked “no” and wrote, “minimal physical activity, no lifting / fully

ambulatory.”

                                             II.

       At first, Havens attempted to keep working in his previous job with appropriate

modifications, a solution that proved unsuccessful. The modified option was terminated

on July 28, 2000. Since then, Havens has made multiple attempts to recover for his

injuries and loss of income. His tort suit against Ramada settled. He applied for workers’

compensation; it was granted on August 8, 2000, and the award was upheld on November

28, 2001. He applied for Social Security Disability benefits and was granted them as of

February 2001. Most importantly for our purposes, he applied for disability benefits

under his group disability coverage through Continental. He was approved for short-term

disability benefits on November 1, 2000, based on a disability deemed to have begun on

August 7, 2000. Continental began paying him long-term disability benefits as of August

                                             5
7, 2001.

       Under Havens’s long-term disability policy, Continental agreed to pay benefits

equal to two-thirds of a claimant’s pre-disability income if the claimant was “disabled.”

“Disabled” was defined as follows:

       “[After the first year of benefits], “Disability” means that Injury or Sickness
       causes physical or mental impairment to such a degree of severity that You
       are: 1. continuously unable to engage in any occupation for which You are
       or become qualified by education or training or experience; and 2 [are not
       in fact working].”

“Injury” was defined as “bodily injury caused by an accident which results, directly and

independently of all other causes, in Disability which begins while Your coverage is in

force.” “Sickness” was defined as “sickness or disease causing Disability which begins

while Your coverage is in force.” The required proof of loss under the policy included:

       “4. Proof that You are receiving Appropriate and Regular Care for Your
       condition from a Doctor . . . .
       5. Objective medical findings which support Your Disability. . . .
       6. The extent of Your Disability, including restrictions and limitations
       which are preventing You from performing Your Regular Occupation.”

The policy also provided, “The Plan Administrator has the discretionary authority to

determine eligibility for benefits and to construe the terms of the Plan.”

       On July 30, 2002, a vocational expert at Continental conducted a vocational review

to determine whether Havens was disabled from “any occupation,” as required for

coverage beyond one year. After summarizing medical information from Havens’s file,

she concluded:

       “Based on the claimant’s age, work history, education, geographical

                                              6
       location and function, claimant is able to perform the following alternative
       occupations: Project/Construction Manager, Supervisor-Property Inspection
       and Sales- Building Materials. These occupations exist at a gainful wage in
       claimant’s geographical location.”

On August 22, 2002, an internal secondary review concluded, “Agree,” without further

explication.

       On August 26, 2002, Continental sent Havens a letter denying him long-term

disability benefits. The letter stated:

               “Based on your physical restrictions and limitations, you were not
       able to perform the physical requirements of your own occupation as a
       Commercial Insurance Property Reinspector, however, based on your level
       of function with said restrictions, your age and education as well as a labor
       market survey, you have the capacity to return to gainful work within the
       restrictions provided.
               In order to determine other vocational alternatives, which may be
       available to you, we referred your file for a vocational review.
               Based on your physical limitations as well as taking into account
       your age, education, training, and past work experience, we have identified
       several jobs, which exist in your geographic area that would be consistent
       with the parameters cited above.
               These jobs are as follows:
               1. Project/Construction Manager
               2. Supervisor-Property Inspection
               3. Sales-Building Materials
               These Occupations would represent a reasonable level of gainful
       employment.”

Continental terminated Havens’s disability benefits as of August 5, 2002, but stated, “In

good faith, we are going to pay your benefits for one month through 9/5/02.”

       On October 22, 2002, Havens wrote to Continental requesting reconsideration.

Continental reviewed the letter and its attachments, resulting in a file notation on

November 4, 2002:

                                              7
       “Based on the information presented, EE has some noted findings in his
       lumbar spine area which may cause restricted motion in a manual type job.
       However it is unclear why EE would not be able to perform alternative type
       work as stated in his termination letter.”

On December 10, 2002, Continental denied relief. This time, the denial letter stated:

       “After a comprehensive review of your client’s claim file, we acknowledge
       that his test results do show abnormalities that would cause some limitations
       in his functional ability. We further acknowledge that your client would not
       be able to perform the material and substantial duties of his own occupation
       that included heavy lifting, bending, and stooping as previously stated in
       CNA’s letter dated 8/2/602. However, the evidence presented revealed that
       both Dr. Freese and Meller revealed that your client’s lower extremity
       strength and sensation was intact and Dr. Meller noted that your client was
       able to move about without signs of discomfort. We also relied on the
       expertise of CNA’s vocational assessment that concluded that based on the
       evidence presented your client would be able to perform any occupation
       and provided a sample of these types of occupations, not all-inclusive, that
       were listed in CNA’s previous letter dated 8/26/02. We would like to note
       that although the letter dated 8/26/02 indicated that a labor market survey
       was performed, this was labor market research and not a formal labor
       market survey.”

       On July 12, 2004, Havens filed suit in the U.S. District Court for the Eastern

District of Pennsylvania. He alleged wrongful termination of his long-term disability

benefits, wrongful termination of his life insurance, and bad faith. He filed an amended

complaint on November 1, 2004 removing the allegation of bad faith. Both sides’

motions for summary judgment were denied on February 24, 2005. After what the parties

describe as a bench trial, which consisted solely of oral argument on the administrative

record, the District Court made findings of fact and law and entered judgment in favor of

Continental on June 7, 2005. Havens timely filed this appeal.

                                            III.

                                             8
       This case arose under 29 U.S.C. § 1132(a)(1)(B) of the Employee Retirement

Income Security Act (“ERISA”), which gives a claimant a cause of action to enforce the

terms of a benefits plan. Remedies include both an award of past benefits due and a

declaration of the claimant’s right to future benefits. The District Court had jurisdiction

under 29 U.S.C. § 1132(e)(1). We have appellate jurisdiction under 28 U.S.C. § 1291.

“In an appeal from an ERISA bench trial, we review findings of fact for clear error but

have plenary review over the District Court's conclusions of law.” Vitale v. Latrobe Area

Hosp., 420 F.3d 278, 281 (3d Cir. 2005).

       With regard to the standard of review to be applied to the plan administrator’s

decision, “a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a

de novo standard unless the benefit plan gives the administrator or fiduciary discretionary

authority to determine eligibility for benefits or to construe the terms of the plan.”

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Where, as here, the

plan does give the administrator such discretionary authority, we instead review the

administrator’s decision under an arbitrary and capricious standard of review. Id. at 111.

This exception has an exception of its own. “Of course, if a benefit plan gives discretion

to an administrator or fiduciary who is operating under a conflict of interest, that conflict

must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’”

Id. at 115 (quoting Restatement (Second) of Trusts § 187, Comment d (1959)).

       We explained this “conflict of interest” language in Pinto v. Reliance Standard

Life Ins. Co., 214 F.3d 377 (3d Cir. 2000). There, we held that when an insurer (rather

                                              9
than an employer) both funds and administers a plan, it operates under a conflict of

interest justifying a heightened standard of review. Id. at 390. The exact degree by

which the review is heightened over the baseline of deferential arbitrary and capricious

review is to be evaluated on a sliding scale, “allow[ing] each case to be examined on its

facts.” Id. at 392. Relevant factors include “the sophistication of the parties, the

information available to the parties, and the exact financial arrangement between the

insurer and the company.” Id. Pinto also pointed to “the current status of the fiduciary,”

id., by which it meant concern for whether the fiduciary was operating in an environment

in which incorrect adverse decisions would not come back to haunt it because, for

example, the company was breaking up or laying off many of its employees, disrupting

normal relationships. One further factor to be considered is “demonstrated procedural

irregularity, bias, or unfairness in the review of the claimant's application for benefits.”

Kosiba v. Merck & Co., 384 F.3d 58, 66 (3d Cir. 2004).

       In this case, few if any of these factors beyond the basic financial conflict of

interest are at work. The normal difference in sophistication between an insurer and a

claimant, present here, does not by itself raise much suspicion. Stratton v. E. I. DuPont

de Nemours & Co., 363 F.3d 250, 254 (3d Cir. 2004). Havens argues that Continental

made its decision on the basis of limited information, but Continental’s case file contains

hundreds of pages of office notes, test results, and opinions from Havens’s doctors.

Numerous Continental employees communicated with Havens and his doctors and closely

evaluated the medical evidence. Similarly, nothing in the record suggests to us that there

                                              10
is anything troubling about the financial relationship between Continental and CNA; the

relationship does not seem to be anything other than a garden-variety third-party-

administered group disability insurance plan. Finally, there is no evidence apparent to us

of procedural irregularity or bias in Continental’s internal decision-making process.

       We, therefore, apply only a low to moderate degree of heightened scrutiny, near

the arbitrary and capricious end of the sliding scale. “The routine legal meaning of an

arbitrary and capricious decision is . . . a decision without reason, unsupported by

substantial evidence or erroneous as a matter of law.” Id., at 255 (quoting Pinto, 214 F.3d

at 392). The administrator’s decision should receive “some deference, but this deference

will be lessened to the degree necessary to neutralize any untoward influence resulting

from the conflict.” Id. at 256 (quoting Doe v. Group Hospitalization & Med. Servs., 3
F.3d 80, 87 (4th Cir. 1993)). The burden of proof remains with Havens.

                                            11
                                              IV.

       The finding that Havens was capable of performing alternate occupations was

arbitrary and capricious. The irreducible logical core of such a finding is that a claimant

has a residual functional capacity that equals or exceeds the functional requirements of a

feasible alternate occupation. These two determinations—the claimant’s capacity and the

occupation’s requirements—must together be detailed enough to make rational

comparison possible. Otherwise, the “finding” that the claimant can perform alternate

occupations consists only of a bald assertion.

       Continental made neither determination. As to Haven’s physical capacity,

Continental had before it the opinions of Dr. Cohen, Dr. Boucher, and Dr. DeMasi, all of

whom indicated specific and stringent restrictions on the work Havens could perform. On

any fair reading of their reports, Havens had little ability to lift even very light objects,

required great freedom to shift positions, and could not work more than four hours in a

day. Continental’s letters denying benefits neither adopt these restrictions nor attempt to

identify a less stringent set. The letters were simply silent on the matter. While they

show that Continental had before it substantial medical evidence, they do not connect that

evidence to Haven’s actual physical capacity.

       Continental argues that Dr. Meller’s findings, as described in the denial letters,

supported its conclusion that Havens was not disabled. Dr. Meller, however, limited his

opinion to discussing whether Havens was disabled as a result of the October 1999

injury. That question would have been determinative in the workers’ compensation

                                              12
litigation, but it is not the ultimate issue here. Dr. Meller wrote, “If not for his unrelated

and pre-existing medical conditions, he would be able to climb roofs, climb ladders, and

place himself in awkward positions,” (emphasis added) and, “Although [Havens] does

have severe significant disabling problems with regard to his back, his bladder, his leg,

and his neck, none of these things are in any way related to his work injury.” (emphasis

added) His reports cannot be read as finding that Havens was not disabled.

       As to the physical requirements of the proposed alternate occupations, the record is

equally silent. Neither denial letter does more than list the names of the occupations. The

letters do not discuss the physical requirements of the occupations, do not describe the

occupations in any way, and do not name any other source that might provide such

information. They do not even explain how Continental’s vocational expert selected

these occupations. The expert’s report simply listed a few general factors considered and

then named the three occupations. Continental may reasonably rely on its vocational

experts to help it identify alternate occupations, but it is not rational to defer to such

experts in the absence of a threshold indication that their conclusions, in the words of

Federal Rule of Evidence 702, are the product of “reliable principles and methods . . .

applied . . . reliably to the facts of the case.”

       The absence of a specific determination of a claimant’s capacity or a proposed

occupation’s requirements need not always be problematic. If it were clear, for example,

that the claimant’s disabling restrictions conflicted only with the idiosyncratic

requirements of his own previous occupation, it might be superfluous to spell out the

                                                13
requirements of the named alternate occupations. But where, as here, the claimant’s

disabilities are indisputably substantial, the insurer has done nothing to rule out

extraordinarily rigorous restrictions to be found in the record, and the proposed alternate

occupations consist merely of unexplained job titles, accurate comparison is impossible.

Accordingly, Continental’s denial of benefits was arbitrary and capricious. We hold that,

on the record presented here, Havens is “disabled” from “any occupation,” as those terms

are used in his contract of long-term disability insurance with Continental. We will

reverse the judgment of the District Court and will remand with instructions to enter the

appropriate judgment for Havens.

                                             14