Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

ADVENTIST GLENOAKS HOSPITAL v. SEBELIUS (December 15, 2011)

The federal Medicare program reimburses hospitals for the care they provide to eligible patients. The reimbursement amount is calculated through the application of a rather complicated formula. One element of the formula is a hospital’s "wage index," which, in turn, depends on the average hourly wage in the hospital's Metropolitan Statistical Area. The average hourly wage is computed using actual hospital wage and hour data. Most hospital employees are not paid for lunchtime. Some hospitals, however, pay their employees for a half-hour lunch. All other things being equal, including a half-hour paid lunchtime in the data results in a lower average hourly wage and less Medicare reimbursement. A number of hospitals asked the Secretary of the Department of Health and Human Services to exclude paid lunchtime hours from the formula. When she refused, the hospitals appealed to the Provider Reimbursement Review Board. The Board upheld the Secretary's decision. The hospitals sought review in the district court. Judge Guzman (N.D. Ill.) concluded that the Secretary's decision was not arbitrary or capricious or otherwise unlawful and granted summary judgment in her favor. The hospitals appeal.

In their opinion, Seventh Circuit Judges Cudahy, Manion, and Sykes affirmed. The Court first noted that its review was quite limited. The Secretary's decision will stand unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." The Court conceded that there was some logic in the hospitals’ position -- as did the Secretary. Indeed, the Secretary supported her decision principally on administrative convenience grounds. She decided to include not only paid lunchtime, but also other paid leave time such as military leave, jury duty, sick leave, etc. The last time the Secretary solicited public comment, there was significant disagreement among the commentators over how to treat things like paid lunchtime. Given that the Secretary has considered her alternatives and adequately explained her decision, the approach is reasonable and legal and will stand.

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WEITZENKAMP v. UNUM LIFE INSURANCE COMPANY (September 20, 2011)

Time Warner Cable employed Susie Weitzenkamp as a sales representative. Weitzenkamp participated in the company's employee benefits Plan, which included long-term disability benefits. The disability Plan provided for 24 months of benefits if a participant could not perform the duties of her regular position. Benefits could continue after 24 months if a participant could not perform the duties of any occupation. The Plan excluded benefits after 24 months if the participant's disability was based on self-reported symptoms. The self-reported symptom exclusion was not mentioned in the Plan’s summary plan description, however. After Weitzenkamp came down with a viral illness, she received 24 months of disability benefits. The Plan invoked the self-reported symptoms exclusion and terminated her benefits after 24 months. Weitzenkamp applied for and received Social Security benefits, as well. The Plan requested reimbursement of approximately $9,000 in overpayments as a result of the retroactive Social Security benefits. Weitzenkamp filed suit. The Plan counterclaimed for the overpayments. Judge Griesbach (E.D. Wis.) granted summary judgment to the Plan, approving its reliance on the self-reported symptoms exclusion. The district court also awarded the Plan the overpayments. On appeal, the Seventh Circuit reversed (opinion and intheiropinion) the benefits denial, holding that the Plan's failure to include the exclusion in the summary plan description estopped it from relying on it as a defense. The Court affirmed the recovery of the overpayments. The Court later granted a petition for rehearing and withdrew its opinion.

In their opinion after rehearing, Seventh Circuit Judges Rovner and Hamilton and District Judge Lefkow again reversed in part and affirmed in part, although its reversal rested on different grounds. The Court conceded that its review was under the arbitrary and capricious standard, which gives great deference to the Plan. Here, the district court concluded that the benefits denial was not arbitrary and capricious because of the self-reported symptoms exclusion. The Court looked to the Plan's language to decide whether it applied to all illnesses where symptoms are self-reported (as the Plan contends) or only to illnesses where the diagnosis is based primarily on self-reported symptoms (as Weitzenkamp contends). The Court conceded that a literal interpretation supported the Plan’s view – but it rejected that interpretation. Since most illnesses and diseases manifest themselves through pain or weakness or fatigue (i.e., symptoms are self-reported), they would be included within the exclusion under the Plan's view. That result would not be reasonable and therefore makes the Plan's interpretation arbitrary and capricious. Instead, the Court concluded that the exclusion applies only to illnesses that are diagnosed primarily on the basis of self-reported symptoms. Here, Weitzenkamp's fibromyalgia was diagnosed with the "trigger test," an accepted clinical test for the illness. The self-reported symptoms exclusion therefore does not apply and Weitzenkamp was improperly denied benefits. Because the record supports a disability finding, the Court ordered reinstatement of benefits rather than a remand. With respect to the request for benefits reimbursement, the Court agreed that the Plan could not levy or garnish Weitzenkamp’s Social Security benefits under the statute but that also concluded that the statute does not preclude a claim for reimbursement. The Plan was entitled to reimbursement.

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FRYE v. THOMPSON STEEL COMPANY (September 2, 2011)

During Basil Frye's long employment with Thompson Steel Company in Franklin Park Illinois, he suffered two work-related injuries. He received over $80,000 in workers’ compensation settlements for permanent partial disabilities. In 2007, Thompson decided to close its Franklin Park facility and Frye chose to take early retirement. The company's Retirement Committee, which administered Frye's pension, advised Frye that his pension benefits would first go to repay the workers’ compensation settlement amounts. The Plan provided that amounts paid to an employee for an injury causing "disability in the nature of a permanent disability" would be deducted from the employee's pension benefits. Frye challenged the Committee's determination unsuccessfully. He then filed suit under ERISA’s § 502 to recover benefits. Magistrate Judge Cole (N.D. Ill.) granted summary judgment to Frye, concluding that the Committee's decision was arbitrary and capricious. The court based its ruling on the Plan's definition of disability. Thompson appeals.

In their opinion, Seventh Circuit Judges Ripple, Evans (who, as a result of his death, took no part in the decision), and Sykes reversed and remanded. The Court first noted that the Committee had substantial leeway in interpreting the Plan under the arbitrary and capricious standard of review. Although it is not free to disregard unambiguous language, its construction and interpretation of ambiguities is entitled to substantial deference. Here, the Plan defined disability as when an employee "has been totally disabled by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment." The Court conceded that there were two reasonable interpretations of the Plan’s settlement offset section. Under one, a permanent partial disability like Frye's could be an offset disability because it is in the nature of a permanent disability. Under another, an offset disability must be one that prevents the employee from engaging in any occupation or employment, which Frye’s is not. The Court found nothing in the Plan’s structure or the application of common sense to resolve the ambiguity. The Committee was entitled to interpret the plan to the best of its ability and its interpretation was reasonable. The Court remanded with instructions to enter summary judgment for Thompson.

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COMRIE v. IPSCO, INC. (February 18, 2011)

Ipsco, Inc. had an unfunded, supplemental pension plan for its top executives. The plan had a golden parachute provision under which an executive was eligible for benefits if he left the company's employ within two years of a change of control. John Comrie was an executive covered by the plan. He resigned shortly after Ipsco was acquired by a Swedish company. Under the plan, Comrie was entitled to 54% of his average annual compensation over the last five years of his employment. The plan specifically excludes a "bonus" from compensation. Comrie computed his benefits by excluding only that compensation that was specifically designated as a "bonus." The company, through the committee that administered the plan, computed his benefits by excluding all compensation that was linked to stock, even if it was not designated as a "bonus." Judge Darrah (N.D. Ill.) granted summary judgment to the defendants. He applied an arbitrary and capricious standard because the plan granted the committee interpretive discretion. Comrie appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Rovner affirmed. The Court agreed with the district court's deferential review. It rejected Comrie's argument that the committee had a conflict of interest. And it concluded, relying on Firestone, that a contract conferring interpretive discretion on an  administrator, whether or not an ERISA fiduciary, must be honored. In so holding, the Court criticized the Third (Goldstein) and Eighth (Craig) Circuits. Applying the deferential standard, the Court concluded that the committee's decision was not arbitrary or capricious. Although it found nothing in the plan's language or other relevant evidence that answer the question definitively, the Court applied a common "business world" understanding of the term. The amount of Comrie's stock-linked income varied from year to year and was discretionary -- that sounded enough like a bonus to the Court to support the committee’s decision.

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SELLERS v. ZURICH AMERICAN INSURANCE CO. (December 3, 2010)

On September 15, 2005, Time Warner Cable employee Anthony Sellers suffered a torn tendon in his knee while at work. His surgeon, Dr. Schultz, repaired the tear and inserted a metal wire in the knee to facilitate Sellers' recovery. The wire was originally scheduled to be removed after several months. Dr. Schultz decided to leave it in, however, because Sellers was experiencing no pain. He eventually removed the wire on November 16, 2006, after Sellers complained of swelling and x-rays showed that the wire had broken into three pieces. Tragically, Sellers died nine days later from acute pulmonary embolism. Anthony's widow Audrey Sellers made a benefits claim under Sellers' accidental death and dismemberment policy, a part of Time Warner's employee welfare benefit plan. The plan provided for accidental death benefits if an "injury" results in death within a year of the "accident." Zurich American Insurance Company, which issued the policy, denied benefits. Its position was that the death occurred more than one year after the accident. It rejected Sellers' position that the wire breakage was an "injury." Sellers brought suit under ERISA. The district court remanded for more expansive findings and rationale on whether the wire breakage was an injury. Zurich again denied the claim. Its rationale was that an accident is an "unexpected event" and that, as evidenced by the Schultz's notes, the wire breakage was expected. On the renewal of the cross-motions for summary judgment, Judge Adelman (E.D. Wis.) granted summary judgment to Zurich. Sellers appeals.

In their opinion, Seventh Circuit Judges Flaum, Manion, and Tinder affirmed. The Court first noted that it was applying an arbitrary and capricious standard of review, because Time Warner's benefit plan gives Zurich discretion to construe policy terms and Zurich based its decision on a construction of the plan's terms. On the merits, the Court found Zurich's construction of the plan arbitrary and capricious because it applied its definition of accident through the eyes of a doctor instead of a person of average intelligence and experience. Nevertheless, the Court affirmed the denial of benefits based upon its decision in Senkier. In that case, the court held that a death that is the result of complications of a standard medical treatment is the result of the underlying cause for the treatment. Here, the wire breakage was not an accident because it was an expected risk of the original surgery. Thus, the accident is the original tear and Sellers' death did not occur within a year.

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 HOLMSTROM v. METROPOLITAN LIFE INSURANCE CO. (August 4, 2010)

Lanette Holmstrom developed a painful nerve condition in her right arm in 2000 and stopped working. Metropolitan Life Insurance Company administered her employer's benefit plan. MetLife paid disability benefits first under the "own-occupation" standard and then under the "any-occupation" standard for several years. Meanwhile, Holmstrom underwent three surgeries. None of the surgeries relieved her pain. Her physician diagnosed complex regional pain syndrome and concluded that further surgical intervention was unwarranted. Instead, Holmstrom was placed on a heavy pain medication regimen. With MetLife's help, Holmstrom applied for and began receiving Social Security benefits. Despite any lack of improvement in her condition, MetLife terminated Holmstrom's benefits in 2005 after a periodic review. Its rationale for the denial was that the medical data "no longer support(ed)" the severity of her impairment. Holmstrom appealed and provided substantial additional information, including a 2005 Functional Capacity Evaluation ("FCE") and a detailed statement from her physician with his diagnosis and his conclusion that she could perform no hand functions. MetLife denied the appeal, noting a lack of "objective findings." MetLife specifically noted that it could have reached a different decision had it been provided a more thorough FCE. Holmstrom submitted the requested FCE and additional test results. MetLife's physicians concluded that Holmstrom's physical limitations were not severe and that her diagnosis was not established by medical data. After a further exchange, one of MetLife's physicians recommended an independent medical examination. MetLife upheld its denial of benefits without seeking such an examination. Holmstrom brought suit under ERISA. Judge Dow (N.D. Ill.) granted summary judgment to MetLife. Holmstrom appeals.

In their opinion, Judges Kanne, Wood, and Hamilton reversed and remanded. Even applying the arbitrary and capricious standard of review, the Court found error. The Court first rejected three of Holmstrom arguments: a) that MetLife could not periodically review and reverse prior benefit decisions, b) that MetLife had to prove that her condition actually improved to reverse its course, and c) that the court could take into consideration MetLife's "batting average" in other federal cases challenging its benefit decisions. On the other hand, the Court found that several factors supported an arbitrary and capricious conclusion: a) erroneously concluding that certain normal test results contraindicated the diagnosis, b) unreasonably demanding objective pain data were no objective test exists, c) not adequately explaining its rejection of the FCEs, d) failing to even consider the Social Security determination, e) discounting Holmstrom's own extensive medical history, f) rejecting the evidence of Holmstrom's cognitive impairment resulting from the medication regimen, g) relying on the opinion of the records-review doctors in the face of overwhelming contrary evidence, h) ignoring the recommendations of its own physician to conduct an independent medical examination, and i) its repeated practice of asking for new data and then rejecting the data for reasons never communicated to Holmstrom. Holmstrom submitted evidence sufficient to establish her disability -- MetLife failed to counter it with sound reasoning supported by the record. The Court added that it saw several factors that suggested a conflict of interest existed. Finally, with respect to the remedy, the court conceded that the normal remedy in such a case is a remand for a fresh administrative decision. Here, however, there was an earlier award of benefits, there has been no apparent positive change in Holmstrom's condition, and the Court had a "firm grasp" of the merits. It decided that the appropriate remedy was a reinstatement of benefits. It remanded for the district court to consider the request for fees, costs, and interest.

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GREEN v. THE UPS HEALTH AND WELFARE PACKAGE (February 10, 2010)

UPS negotiates collective bargaining agreements (CBAs) covering its employees who are members of the International Brotherhood of Teamsters (“IBT”). It actually negotiates with the international union and also directly and separately negotiates with some large locals, including Local 705. Under the 2002-2008 CBA with Local 705, UPS agreed to provide health care to Local 705 retirees. The benefit was outlined in the Summary Plan Description (SPD), which applied to all IBT retirees. The SPD set a monthly contribution for each retiree and provided that, if the cost of coverage exceeded a certain threshold, each retiree would share in the excess cost “by making an additional contribution.” It also stated that additional contributions would not be implemented until after the “current” CBA expired. The cost threshold was exceeded in 2006. In October 2007, UPS issued a Summary of Material Modification (SMM) advising all IBT retirees of that fact and imposing an additional contribution for each retiree effective January 1, 2008. Before implementing the additional contribution, however, UPS agreed with both the international and local unions to delay implementation until their respective CBAs expired. UPS sent a revised SMM to Local 705 retirees in December 2007 advising that increased contributions “well be effective” after the expiration of the “current” CBA. After the Local 705 CBA expired in mid-2008, UPS notified Local 705 retirees that it would implement an additional contribution effective February 2009. Local 705 retirees brought a class action, alleging that the collection of additional contributions violated the Plan and ERISA because a) the retirees were not sharing equally since the international retirees were not yet contributing, and b) the SPD stated that contributions would not be implemented until the expiration of the “current” plan and the Local 705 current plan now expired in 2013. The district court agreed with Local 705 on the first argument but agreed with the Plan on the second – and enjoined further collection of contributions until further order of the court. The retirees and the Plan appeal.

In their opinion, Judges Cudahy, Wood, and Evans affirmed. The Court agreed with the district court that the collection of contributions from Local 705 retirees only controverted the plain language of the Plan and was, therefore, arbitrary and capricious. The Court rejected UPS’ contrary interpretation of the “share equally” language and rejected its plea to consider extrinsic evidence under the doctrine of extrinsic ambiguity. Although the Court was more receptive to the use of the extrinsic ambiguity doctrine with respect to the meaning of “current” in the SPD, it concluded that it need not. Instead, it held that the December 2007 revised SMM modified the SPD and made it clear that the “current” CBA referred to was the 2002 CBA.

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WETZLER v. ILLINOIS CPA SOCIETY & FOUNDATION RETIREMENT INCOME PLAN (November 10, 2009)

Thomas Wetzler worked for the Illinois CPA Society for twenty-two years. Throughout his employment, he participated in the Society's Retirement Income Plan (the "Plan"). When he retired, he qualified as a highly-compensated employee ("HCE") under the plan. Wetzler was only the second HCE to retire under the Plan. Although the first was allowed to take a lump-sum payout of Plan benefits, the Plan later determined that the distribution was in error and violated federal regulations. The Plan was amended to require security when an HCE elects a lump-some distribution. When the Plan refused to allow Wetzler to take a lump-sum distribution, he filed suit under ERISA. He alleged that the amendment violated the Act by eliminating a benefit which had been previously available. The district court granted summary judgment to the Plan. Wetzler appeals.

In their opinion, Circuit Judges Manion and Kanne and District Judge Kendall affirmed. The Court first concluded that the lower court applied the correct standard of review. Because the Plan gives its administrator discretion to construe its terms, the court's review of the administrator's decision is under an arbitrary and capricious standard. Next, the Court addressed the merits of the argument that the Plan amendment violated ERISA. The Court concluded that HCEs never had the option of a lump-sum payment. The amendment was simply the Plan's way of correcting the earlier, erroneous distribution. The amendment, therefore, did not violate ERISA. Finally, the Court upheld the administrator's decision to deny the distribution to Wetzler. The fact that the distribution would have been in violation of the Internal Revenue Code gave the administrator a reasonable basis for denial.

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FISCHER v. LIBERTY LIFE ASSURANCE CO. (August 4, 2009)

After five years as a programmer with Stein Roe, Bruce Fischer complained of memory loss and problems with his attention. He applied for and received short-term disability benefits. A few months later, he submitted a claim for long-term benefits. The three medical reports he submitted with his application contained diagnoses of severe or profound depression. The plan administrator approved his application but informed him of the plan's 24-month maximum benefit period for mental illnesses, including depression. After the 24 months, the plan discontinued Fischer's benefits. Fischer continued to see additional medical personnel during the period of the plan's evaluation and his appeal. In all, at least thirteen physicians reviewed Fischer’s case. There was disagreement among the physicians as to whether Fischer's condition was organic or psychological. Fischer brought an action under ERISA for reinstatement of benefits. The district court granted summary judgment to the plan administrator. Fischer appeals.

In their opinion, Judges Posner, Flaum and Wood affirmed. The Court noted its limited scope of review. Only if the plan's decision is arbitrary and capricious will the court disturb it. The Court noted the "ample evidence" in the record supporting Fischer's contention that his condition is organic, at least in part. It also noted, however, the evidence in the record that concluded that his condition was solely psychological. On that record, applying an arbitrary and capricious standard of review, Fischer cannot prevail.

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LEGER v. TRIBUNE COMPANY LONG TERM DISABILITY BENEFIT PLAN (March 9, 2009)

Lisa Leger suffered from osteoarthritis for years. Prior to 1990, she underwent three different arthroscopic procedures but was able to hold a job and engage in a rehabilitative exercise program. However, in 1990, she stopped working for WGN-TV and went on short-term disability. She began receiving long-term disability benefits in December 1990. She continued to receive benefits through 2005. During that time, she continued to have pain and problems with her knees and underwent multiple additional surgeries. The plan administrator reviewed her benefits in 2005 and requested updated information. Her treating physician advised that she was essentially unable to walk. The plan administrator's medical review concluded that she had significant osteoarthritis but that she was not precluded from sedentary work. A vocational rehabilitation consultant identified several employment positions for which she was qualified. The plan administrator therefore terminated her benefits in October of 2005. Leger appealed and provided additional medical information. The plan administrator arranged for another review of the file. That review highlighted some inconsistencies in her records. For example, the records indicated that she could not sit for more than 30 minutes at a time but she nevertheless was wheelchair bound. The plan administrator upheld the decision to terminate her benefits. Leger brought an action pursuant to ERISA’s section 1132 (a)(1)(b) to reinstate her benefits. The lower court granted summary judgment to the plan, stating that it advanced a reasonable explanation for its decision to terminate the benefits. Leger appeals.

In their opinion, Judges Bauer, Ripple and Evans reversed and remanded. The Court first rejected Leger's position, first brought out on appeal, that the arbitrary and capricious standard was the inappropriate standard of review. It added, however, that the claims determination still must comply with ERISA and that the claimant must be afforded a full and fair review. The Court also rejected Leger's arguments that the fifteen year history of payments or the plan's reliance on a medical file review only created a presumption that the termination decision was arbitrary and capricious. Instead, in determining whether a decision is arbitrary and capricious, the Court said it would look to the specific reasons for the denial, whether the claimant was afforded a full and fair review, and whether there is an absence of reasoning in support of the determination. Here, the Court was concerned that the determination failed to mention Leger's voluminous medical record spanning almost 20 years and 17 surgeries. The Court was also concerned about the treatment of the functional capacity evaluation. The plan ignored the FCE evidence that Leger's complaints of pain were real. The Court indicated that the plan was required to do more than just dismiss the complaints. As such, there was an absence of reasoning in the record and the determination was arbitrary and capricious. The Court recognized that it had the option of either remanding the case for further proceedings or reinstating the benefits. Here, because the plan failed to consider the lengthy medical history and to provide adequate reasoning for its treatment of the FCE, the Court was unable to say definitively that the determination was unreasonable. It therefore remanded the case for further proceedings.
 

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