Court Opinion

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Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-10-2008

Nally v. Life Ins Co N Amer
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-4761

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                                                                NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT

                                     No. 07-4761

                    VICKY NALLY, Administrator of the Estate of
                    Dennis Nally; VICKI NALLY, in her own right,
                                           Appellant

                                          v.

               LIFE INSURANCE COMPANY OF NORTH AMERICA

                    On Appeal from the United States District Court
                       for the Eastern District of Pennsylvania
                            D.C. Civil No. 2:07-cv-00707
                   (Magistrate Judge: Honorable L. Felipe Restrepo)

                      Submitted Under Third Circuit LAR 34.1(a)
                                  October 28, 2008

             Before: MCKEE, NYGAARD, and MICHEL,* Circuit Judges.

                              (Filed: November 10, 2008)

                             OPINION OF THE COURT

   *
      The Honorable Paul R. Michel, Chief Judge of the United States Court of Appeals
for the Federal Circuit, sitting by designation.
MICHEL, Chief Circuit Judge.

       Vicky Nally appeals from the District Court’s grant of summary judgment in favor

of the Life Insurance Company of North America (“LINA”). We will affirm.

                                             I.

       Because we write only for the parties, we will only briefly summarize the facts:

Ms. Nally’s late husband, Dennis Nally, was an insulin-dependent diabetic. One morning

on his way to work, he was involved in a high-speed, single-vehicle automobile accident.

Witnesses described Mr. Nally’s driving before the crash as erratic. The police found no

evidence of mechanical failure, poor driving conditions, or drug use by Mr. Nally.

       Mr. Nally suffered severe traumatic injuries in the accident. It took response

personnel approximately forty-five minutes to extricate him from his vehicle. His glucose

was measured around the time he was extracted and found to be 37 mg/dl. Emergency

medical technicians transported Mr. Nally to a hospital, where he died several days later.

       Ms. Nally filed a claim with LINA under an accidental death and dismemberment

policy provided to Mr. Nally through his employer. LINA determined that benefits were

not payable because the policy excluded deaths resulting in whole or in part from

“sickness” or “disease” and that Mr. Nally’s accident resulted from hypoglycemia.

       Ms. Nally filed suit in the Eastern District of Pennsylvania, challenging LINA’s

                                             2
denial of benefits. The district court granted summary judgment in favor of LINA.1 This

appeal followed.

                                                 II.

         The district court had subject-matter jurisdiction of this civil action arising under

29 U.S.C. § 1132(a)(1)(B) pursuant to 29 U.S.C. § 1132(f). We have jurisdiction over

this appeal from the district court’s final judgment pursuant to 28 U.S.C. § 1291.

A.       Standard of review

         1.     Discretion under the policy

         Ms. Nally argues at length for the blanket proposition that courts, rather than

insurance companies, are entrusted with the responsibility of interpreting insurance

contracts. [Blue Br. at 19-22] Although Ms. Nally quotes from Firestone Tire and

Rubber Co. v. Bruch, [Blue Br. at 20] she inexplicably overlooks the holding of that

case: “[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.” 489
U.S. 101, 115 (1989).

         The policy as issue provides that “the Insurance Company shall have the authority,

in its discretion, to interpret the terms of the Plan documents, to decide questions of

     1
      The district court’s decision is available as Nally v. Life Insurance Corp. of North
America, 43 Empl. Benefits Cas. (BNA) 1712, 2007 WL 4390423, 2007 U.S. Dist.
LEXIS 92211 (E.D. Pa. 2007).

                                                3
eligibility for coverage or benefits under the Plan, and to make any related findings of

fact.” Here, the district court determined this language was, pursuant to Firestone, a grant

of discretion to interpret the plan. [slip op. at 12]

       However, the summary plan description (“SPD”) states that “[t]he Tyco Benefits

Review Committee shall have the discretionary authority to determine eligibility for plan

benefits and to construe the terms of the plan, including the making of factual

determinations.” Ms. Nally argues that the difference between the policy and the SPD as

to what entity has authority to interpret the policy (the insurance company versus the Tyco

Benefits Review Committee) means that the SPD controls and LINA therefore lacks

authority to construe the policy.   2

       “[W]here a summary plan description conflicts with the plan language, it is the

summary plan description that will control.” Burstein v. Ret. Account Plan for Employees

of Allegheny Health Educ. & Research Found., 334 F.3d 365, 378 (3d Cir. 2003). “If an

SPD conflicts with a plan document, then a court should read the terms of the ‘contract’

to include the terms of a plan document, as superseded and modified by conflicting

language in the SPD.” Id. at 381.

       2
              Ms. Nally’s argument rests in large part upon her assertion that
Pennsylvania’s reasonable expectations doctrine is applicable. [Blue Br. at 34-40]
However, federal common law—not state law—governs the interpretation of a benefit
plan in an ERISA suit. Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202, 1210 (2d Cir.
2002); Hooven v. Exxon Mobil Corp., 465 F.3d 566, 572 (3d Cir. 2006) (“Generally,
breach of contract principles, applied as a matter of federal law, govern claims for
benefits due under an ERISA plan.” (quotation marks omitted)).

                                               4
       The district court determined that because both the policy and the SPD contained

an unambiguous grant of discretion to some entity, the discrepancy between the two as to

which entity had this discretion was not significant in this instance. [Slip op. at 12] The

district court reasoned that the two documents could be read harmoniously as granting the

Tyco Benefits Review Committee discretion (as noted by the SPD) which was

permissibly delegated to LINA (as noted by the policy). [Id.]

       We agree with the district court. In Tocker v. Phillip Morris Cos., the Second

Circuit determined that a policy vested discretion in an administrator even though the

SPD given to the plaintiff was completely silent on the issue. 470 F.3d 481, 488-890

(2006). Other circuits have reached the same conclusion. See Fenton v. John Hancock

Mut. Life Ins. Co., 400 F.3d 83, 90 (1st Cir. 2005); Martin v. Blue Cross & Blue Shield of

Va., 115 F.3d 1201, 1205 (4th Cir. 1997); Cagle v. Bruner, 112 F.3d 1510, 1517 (11th

Cir. 1997); Wald v. S.W. Bell Corp. Customcare Med. Plan, 83 F.3d 1002, 1006 (8th Cir.

1996); Atwood v. Newmont Gold Co., 45 F.3d 1317, 1321-22 (9th Cir. 1995), overruled

on other grounds by Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 966-67 (9th Cir.

2006) (en banc). Given these holdings from other circuits, it would be anomalous for us

allow the SPD’s statement that the Tyco Benefits Review Committee had discretion to

interpret the policy to invalidate the policy’s grant of discretion to LINA.

                                              5
       2.     Sliding scale

       Even if the policy at issue grants an administrator discretion (presumptively

entitling the administrator to review under an arbitrary and capricious standard), court

scrutiny of the administrator’s decision may be heightened if certain structural or

procedural factors are present. Post v. Hartford Ins. Co., 501 F.3d 154, 161 (3d Cir.

2007). “[A] structural conflict arises when the administrator has a non-trivial financial

incentive to act against the interests of the beneficiaries.” Id. at 162. Procedural factors

warranting heightened scrutiny are generally actions of the plan administrator in reaching

the decision at issue that give the court some reason to doubt the administrator’s

neutrality. Id. at 165. Under this sliding-scale method, courts are to “intensify[] the

degree of scrutiny to match the degree of the conflict” based on structural and procedural

factors. Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 379 (3d Cir. 2000).

       Before the district court, the parties agreed that LINA’s both funding and

administering the policy constituted a structural conflict warranting some increased

scrutiny. Ms. Nally does not argue that additional structural factors are present in this

case; she does, however, claim that procedural factors in the administrator’s decision

warrant heightened review. [Blue Br. 50]. The district court rejected these arguments.

[slip op. 14-15]. Ms. Nally does not explain how the district court erred on this point; she

merely repeats her arguments to the district court, often verbatim. [Blue Br. 50].

                                              6
       Ms. Nally’s main procedural argument is that LINA determined from the outset

that it would deny her claim. Her only evidence in support of this contention is a short

entry in LINA’s internal logs, which reads

              01/09/2006 claim for AD&D received in FCO. Death
              certificate states that Dennis Naly [sic] diedfrom [sic]
              multiple traumatic injuries as the result of an auto accident on
              December 8, 2005. Policy states that benefits will not be paid
              for loss which results directly or indirectly, in whole or in
              part, is [sic] caused by or results sickness [sic], disease or
              bodily ior [sic] mental infirmity.

[D 0036] Ms. Nally contends that this entry indicates that LINA decided at the beginning

of the claim review process to determine that Mr. Nally’s accident was a result of a

medical condition and thus excluded under the policy.

       The district court correctly rejected this argument. [Slip op. at 14] Ms. Nally lacks

any corroborating evidence, and the passage she relies upon is hardly strong support for

her theory.

       Ms. Nally also asserts that LINA’s interactions with a medical consultant, Dr.

Matra Terlecki, is another procedural irregularity warranting heightened review. Ms.

Nally asserts that LINA attempted to cover up Terlecki’s involvement both before and

during this lawsuit, asked her leading questions, and ignored unfavorable findings by

Terlecki.

       The district court rejected this group of arguments. It found that, although LINA

did not disclose Terlecki’s name, LINA mentioned “an independent medical review” in a

                                             7
February 28, 2007 letter to Ms. Nally, and that this referred to Terlecki’s review.3

LINA’s questions to Terlecki (such as “What events could result in a reading of ‘34’ and

how long would it take for a person’s levels to drop to that level? Please explain.”) are

not leading. And while Terlecki stated that because of the time lapse between the

accident and Mr. Nally’s first glucose test she could not determine whether he was

hypoglycemic at the time of his accident, she also noted that a blood glucose level of 37

mg/dl was inconsistent with “safely operating a motor vehicle” and would produce

“cognitive impairment.”

       The district court correctly found that no procedural factors warranted increasing

its scrutiny of LINA’s decision to deny Ms. Nally’s claim, and was therefore correct to

apply only a moderately-heightened standard of review. See Post, 501 F.3d at 164.

       3.     Evidence

       Ms. Nally complains that in reaching its decision LINA impermissibly relied on

evidence that would not be admissible under either the Federal Rules of Evidence (such

as police reports repeating statements by Ms. Nally and people who witnessed Mr. Nally’s

accident) or Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), (such as

Terlecki’s report). It is well-established that “[g]enerally, only evidence in the

administrative record is admissible for the purpose of determining whether the plan

   3
      LINA also points out that Terlecki’s report was produced along with the rest of the
administrative record in the regular course of discovery.

                                              8
administrator’s decision was arbitrary and capricious.” Post, 501 F.3d at 168. Ms. Nally

presents no legal support for her contention that a plan administrator may only consider

evidence that would be admissible in original district court proceedings. Such a

requirement would run counter to the policy behind arbitrary and capricious review of

administrator decisions.

B.     LINA’s denial of benefits

       After correctly determining the applicable standard of review, the district court

correctly applied it to review LINA’s rejection of Ms. Nally’s claim. As the district court

found, there was evidence consistent with the proposition that Mr. Nally was

hypoglycemic at the time of his accident and that his hypoglycemia caused the accident.

That it may be impossible to prove that Mr. Nally was indeed hypoglycemic at the

moment of his accident does not mean that LINA’s decision does not survive moderately

heightened arbitrary and capricious review. It was not unreasonable for LINA to

conclude on the record before it that Mr. Nally’s accident was a result of his

hypoglycemia and thus not covered by this policy. The district court was correct to grant

of summary judgment in favor of LINA.

                                            III.

       Ms. Nally argued that the district court abused its discretion by not awarding her

attorney’s fees pursuant to 29 U.S.C. § 1132(g)(1). Because we have affirmed the district

                                             9
court’s grant of summary judgment in favor of LINA, the district court acted within its

discretion in denying Ms. Nally’s request for fees.

                                            IV.

       For the foregoing reasons, we will affirm the judgment of the district court.

                                            10