Coats v. Reliance Standard Life Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OKLAHOMA

JENNIFER COATS, )

)

Plaintiff, )

)

v. ) Case No. 16-CV-233-TCK-JFJ

)

RELIANCE STANDARD LIFE INSURANCE )

COMPANY, )

)

Defendant. )

OPINION AND ORDER

Before the Court are (1) Plaintiff’s Motion for Judgment on the Administrative Record

(Doc. 28); (2) Defendant’s Response to Plaintiff’s Motion for Judgment on the Administrative

Record and Cross-Motion (Doc. 31); and (3) Plaintiff’s Response to Defendant’s Cross-Motion

for Judgment on the Administrative Record and Reply to Defendant’s Response to Plaintiff’s Cross

Motion for Judgment. (Doc. 32).

I. Background

The facts of this case are largely undisputed. On April 2, 2012, Plaintiff Jennifer Coats

was hired as a staff nurse with Cottage Health Care (“Cottage”), and became a participant in

Cottage’s employee welfare benefit plan (the “Plan”), which is governed by the Employee

Retirement Income Security Act of 1974 (“ERISA”). The Plan includes long-term disability

(“LTD”) benefits funded by Defendant Reliance Standard Life Insurance Company (“Reliance”)

through Group Policy No. LSC 97, 200. The Plan provides that Reliance “shall serve as the claims

review fiduciary with respect to the insurance policy and the Plan”; shall “determine eligibility for

benefits”; and shall make “complete, final and binding decisions on all parties.” (AR 18.)

The Plan policy provides:

MONTHLY BENEFIT: The Monthly Benefit is an amount equal to:

CLASS 1:

CORE: 50% of Covered Monthly earnings, payable in accordance with the

section entitled Benefit Amount.

BUY-UP: 60% of Covered Monthly earnings, payable in accordance with

the section entitled Benefit Amount.

AR 9.

ELIGIBLE CLASSES: each employee of Cottage Health system . . . . according

to the following classifications:

CLASS 1: active, Full-time and Part-time employees except an employee

included in any other class and a Traveling Nurse.

CLASS 2: active, Full-time Director or above employee

CLASS 1: “Part-time” means working for you for a minimum of

18 hours during a person’s regular work week, or a minimum of 36 hours

bi-weekly but less than 72 hours bi-weekly.

Ibid (emphasis added). The Plan Policy contains the following pertinent definitions:

DEFINITIONS

CLASS 1: “Covered Monthly Earnings” means the Insured’s monthly salary

received from you on the first of the Policy month just before the date of Total

disability. Covered Monthly earnings does not include commissions, overtime

pay, bonuses or any other special compensation not received as Covered Monthly

earnings.

If hourly paid employees are insured, the number of hours worked during a

regular work week, not to exceed forty (40) hours per week, times 4.333,

will be used to determine Covered Monthly Earnings.

AR 12 (emphasis added). The term “regular work week” is not defined.

Reliance uses a standardized form titled “Integrated Disability Benefit Initial Statement of

Claim, RS-1971-A,” to initiate and process disability claims. AR 195-201. RSL claims personnel

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refer to it as the “EE App.” See AR 122. Submission of a completed EE App formally initiates a

disability claim. The EE App has five sections, some to be completed by the employee, some by

the employer and some by a treating physician. AR 195-201.

On October 19, 2013, Plaintiff suffered an on-the-job back injury, and she has not worked

for Cottage since then. Reliance fixed that date as the “date of loss” (“DOL”). AR122. On March

24, 2015, Plaintiff submitted to Reliance an EE App for long term disability (“LTD”) benefits. AR

195-201, supra.

Three text fields in the EE App, as completed by Cottage, are pertinent to this dispute. The

first asks the method of Claimant’s’ compensation. Cottage stated that Plaintiff was “Hourly.”

AR197. The second requires the employer to state “Weekly earnings (as defined in policy)”

(emphasis in original). Id. Cottage inserted the figure “1,287.49.” Id. The third asks for “Work

schedule at time of disability ___ day/week ____ hrs/day. Cottage indicated that Plaintiff worked

2 days a week for 12 hours a day.” Id.

On May 5, 2015, RSL’s claims examiner, Spencer Wright, requested that Cottage provide

“payroll for the period of 07/01/2013 – 01/15/2014 and timecards for the period of 10/01/2013-

01/15/2014.” AR 308. Cottage supplied these records. AR 311-347. On May 21, 2015, Wright

made an extended entry into the claim log, in which he concluded, based on Plaintiff’s payroll

records and timecards, that she averaged 23.70 hours of work per week in the last 12 weeks (three

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months) before she became disabled (July 22, 2013-October 13, 2013),1 and was therefore eligible

for benefits. AR 122.2

On June 4, 2015, Wright sent an email to Kreuger, asking six questions. On June 5, 2015,

Kreuger responded to the questions, as follows:

a. Is Ms. Coats an hourly or salaried employee? Hourly

b. If hourly, please provide rate per hour on 10/01/13. $52.7361 hourly, plus a separate

night shift differential rate of $5.00 hourly for hours worked between 1900 (7:00 pm)

– 0700 (7:00 am)

c. Regularly scheduled number of hours required to work weekly? 24 hours weekly

d. How many hours per day? Twelve (12). How many days a week? Two (2) twelve (12)

hour shifts.

e. Is Ms. Coats eligible to receive commissions, overtime pay, bonuses or any other

special compensation? Commissions-no, overtime-yes, bonuses-yes, or other special

compensation-yes.

f. If so, are those amounts provided on the claimant’s payroll records? Yes.

AR 88; 402; 405-412.

On June 5, 2015, Wright recalculated the hours, using the time period of September 2-30,

2013 (four weeks), and concluded that Plaintiff worked an average of only 16.83 hours per pay

period and was therefore ineligible for benefits. AR 127-28. A letter denying Plaintiff’s claim was

dispatched that day. AR 150-153. Cottage and Plaintiff appear to have been immediately informed

1 The actual entry for the first pay period, July 22, 2013 to August 4, 2013, incorrectly states

“08/22/2013-08/04/2013 paid on 8/09/2013…” AR 122.

2 The Court notes that the 23.70 hours figure for actual hours worked is very close to the scheduled

figure of 24 hours a week.

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of the denial, as the same day, Ms. Johnson sent an e-mail to Wright and his supervisor, Heather

Johns, asking for clarification about why the claim was denied. AR 131.

On June 10, 2015, Wright calculated the hours again, using the time period of July 22,

2013,3 to October 18, 2013 (12 weeks), and concluded Plaintiff had worked an average of only

19.21 hours during that time period, but “was an eligible employee immediately prior to leaving

work,” and was therefore eligible for benefits. AR 131-132.4

In calculating Plaintiff’s LTD benefits, Reliance designated the hourly average from the

August 9, 2013-October 18, 2013 period (19.21 hours) as the basis for awarding benefits, rather

than the hourly average from the August 22, 2013-October 13, 2013 period (23.70 hours).

Moreover, Reliance excluded the shift differential plaintiff received for working hours between 7

p.m. and 7 a.m..

By letter dated June 11, 2015, Reliance approved the claim and granted Plaintiff $2,194.96

in monthly LTD benefits. Believing the award was insufficient, Plaintiff filed an administrative

appeal of the benefit determination on December 3, 2015. (AR 187). The appeal was denied on

April 20, 2016. (AR 189-194). After the denial of her administrative appeal, Plaintiff filed suit

against Reliance in Tulsa County, Oklahoma District Court on April 5, 2016. (Doc. 2-2). On April

27, 2016, Reliance removed the case to this court on the basis of 28 U.S.C. §§1331, 1441(a), (b)

and (c) and 29 U.S.C. §1132(e). Id.

3 Wright incorrectly dated the first two-week pay period as “8/22/2013-8/04/2013” instead of

“7/22/2013-8/04/2013.” AR 132.

4 Wright noted that Plaintiff worked 53.25 hours during the pay period of September 16, 2013-

September 29, 2013 and 59.50 hours during the pay period of September 30, 2013-October 13,

2013, and stated, “EE was not averaging full-time hours prior to leaving work, however was an

eligible employee immediately prior to leaving work, therefore appears to be eligible for benefits.”

AR 132-133.

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II. Standard of Review

The Court previously entered partial summary judgment holding that a de novo standard

of review is applicable in this case due to the untimeliness of Reliance’s review of Plaintiff’s

appeal. (Doc. 23).

When performing a de novo review, the Court “stands in the shoes of the original

decisionmaker, interprets the terms of the benefits plan, determines the proper diagnostic criteria,

reviews and medical evidence, and reaches its own conclusion about whether the plaintiff has

shown, by a preponderance of the evidence, that she is entitled to benefits under the plan.”

McDonnell v. First Unum Life Ins. Co., 2013 WL 3975941, at *12 (S.D.N.Y. Aug. 5, 2013)

(internal citations omitted).

Additionally, “‘[i]nsurance contracts, because of the inequality of the bargaining position

of the parties, are construed strictly against the insurer,” and “[t]hese rules of construction apply

equally to ERISA cases governed by federal common law.” Kellogg v. Met. Life Ins. Co., 549

F.3d 818, 830 (2008) (citations omitted). Likewise, the doctrine of contra proferentum, which

requires the Court to construe all ambiguities against the drafter, is applicable. Id.

Finally, under Oklahoma law, when policy language is susceptible to two different but

reasonable interpretations, it is the expectations of the insured that control. Western World

Insurance Co. v. Merkel, 677 F.3d 1266, 1275 (10th Cir. 2012).

III. Analysis

The gravamen of this dispute is the meaning and relationship of several terms in the policy,

most importantly “Covered Monthly Earnings,” “regular work week,” “regular weekly earnings,”

and “rate per hour.”

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The Plan defines “Covered Monthly Earnings” as:

…the Insured’s monthly salary received from [Cottage Health Systems] on the

first of the Policy month just before the date of Total Disability. Covered

Monthly Earnings does not include commissions, overtime pay, bonuses or any

other special compensation not received as Covered Monthly Earnings.5

If hourly paid employees are insured, the number of hours worked during a

regular work week, not to exceed forty (40) hours per week, times 4.333, will be

used to determine Covered Monthly Earnings. If an employee is paid on an

annual basis, then the Covered Monthly Earnings will be determined by dividing

the basic annual salary by 12.

(AR12) (emphasis added). “Regular work week,” “regular weekly earnings,” and “rate per hour”

are not defined.

Nevertheless, Reliance contends that although Plaintiff worked a different number of hours

in each of the weeks leading up to the date of disability, the “regular work week” is the average of

the hours worked in each of the weeks for the time period of July 22, 2013, to October 13, 2013

(12 weeks)—19.21 hours. Doc. 31 at 10 (citing AR 192). Further, it argues that Plaintiff’s

Covered Monthly Earnings (“CME”) must be calculated by multiplying 19.21 hours by $52.24—

Plaintiff’s regular rate of pay excluding the night shift differential. Doc. 31 at 10.

These two determinations—that the average number of hours worked per week was 19.21,

and that the hourly rate was $52.24, form the basis for Plaintiff’s appeal. Plaintiff argues that the

term “Covered Monthly Earnings” is ambiguous when applied to hourly workers because the term

“Regular Work Week,” when applied to hourly employees, is ambiguous. She asserts that

construing the term in the manner most favorable to her, the hourly work week for her was the

5 The Court notes that the last sentence of this definition is hardly a model of clarity, as it excludes

from “covered monthly earnings” “…any other special compensation not received as Covered

Monthly Earnings.” (AR12).

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scheduled work week of 24 hours. Further, she contends that the shift differential was part of her

regular pay and not subject to exclusion.

A. “Regular Work Week”

Reliance concedes that the phrase “regular work week” is not defined in the Plan, but

asserts that for hourly employees, the only reasonable interpretation is that a “regular work week”

should be determined based on the payroll records which document bi-weekly compensation and

the time cards which were completed weekly. (Doc. 31 at 9-10) (citing AR 150-347). Plaintiff,

in contrast, argues that the phrase “regular work week” means the number of hours the insured

employees is ordinarily scheduled to work, which in this case is 24.

To determine whether a phrase is ambiguous under the circumstances, courts “consider the

common and ordinary meaning of the word, as a reasonable person in the position of the participant

would understand it.” LaAsmar, 605 F.3d at 804. “In that light, a term is ambiguous if it ‘is

reasonably susceptible to more than one meaning, or where there is uncertainty as to the meaning

of the term.’” Id. (quotation omitted).

As previously stated, Reliance takes the position in this case that the proper way to

determine the Plaintiff’s “regular work week” is to total the hours she actually worked during the

12 weeks preceding the onset of disability (excluding vacation, overtime pay bonuses or any

special compensation) and divide it by twelve. Doc. 31 at 10. However, In Campos v. Reliance

Standard Life Ins. Co., 2017 WL 11370691 at *3 (C.D. Cal.), Reliance took the position that the

correct approach to determining the insured’s eligibility for LTD benefits was to examine payroll

records and determine whether, over the 16-week period immediately preceding her disability,

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Campos had worked the minimum requirement of 30 hours each and every week. It argued that

since she had not, she was not eligible for LTD benefits. The court disagreed, stating:

Despite Reliance’s argument to the contrary, there is ambiguity in how to determine

a “regular work week” under the LTD Plan. The LTD Plan terms do not expressly

define what constitutes a “regular work week.” Moreover, the dictionary definition

of the word “regular” is of no help in determining a method of calculating a regular

work week. See Regular, Merriam-Webster’s Dictionary, https://www.merriam

webster.com/dictionary/regular (last visited April 10, 2017) (defining “regular” in

part as “recurring, attending, or functioning at fixed, uniform, or normal intervals”).

Reliance’s decision to look at the preceding eight pay periods to determine

Plaintiff’s “Regular work week” is, at best, only one of several permissible ways to

determine a “regular work week.”

Id. The Campos court concluded that it would consider Plaintiff to have met the full-time

requirement if she can provide a reasonable calculation method establishing that she worked in

excess of 30 hours in any “regular work week” prior to her injury. Id.

Here, too, the term “regular work week” is ambiguous. Therefore, the Court must

determine whether Plaintiff has offered a reasonable interpretation of the term. Plaintiff proposes

two alternative methods of determining the appropriate monthly benefit amount:

a. Multiply Plaintiff’s regularly scheduled number of hours per week (24, as reported by

the employer on the EE App), times the hourly rate of pay that Plaintiff contends should

apply ($57.74), to yield “regular weekly earnings” of $1,385.76. (emphasis added). That

result would be multiplied by 4.333 to reach a CME of $6,004.50, which, when multiplied

by fifty percent yields a gross monthly benefit of $3,002.25.

b. Alternatively, take the “weekly earnings” figure of $1,287.49 from Plaintiff’s EE App,

multiplied by 4.333, to reach a CME of $5,578.69. Plaintiff’s gross monthly benefit

would be fifty percent of the resulting number, or $2,789.35.

Doc. 32 at 9-10. Applying the doctrine of contra preferentum, the Court concludes that the term

“regular work week” should be construed to mean the number of hours regularly scheduled in a

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week—in this case, 24 hours—and the Plaintiff’s benefit should be calculated by multiplying her

regularly scheduled number of hours by the hourly pay rate.6

B. Hourly Rate of Pay

Plaintiff also challenges Reliance’s exclusion of the $5.00 per hour shift differential she

received for hours worked from 7:00 p.m. to 7:00 a.m. Reliance argues such pay is excluded by

the definition of “Covered Monthly Earnings,” which states:

“Covered Monthly Earnings” means the Insured’s monthly salary received from [Cottage

Health Systems] on the first of the Policy month just before the date of Total Disability.

Covered Monthly Earnings does not include commissions, overtime pay, bonuses or any

other special compensation not received as Covered Monthly Earnings.

AR 12, supra. However, the circularity of the second sentence renders the definition of “Covered

Monthly Earnings” ambiguous as to what “special compensation” is excluded.

Cottage’s Overtime, Double-time, and Premium Pay Policy provides that the employer

will:

1. pay nonexempt employees overtime and double-time in compliance with California

law;

2. pay additional premium pay beyond that which is legally required for certain categories

of work; and

3. communicate to employees the methods by which overtime, double-time and premium

pay are calculated.

AR408. The policy states that nonexempt employees are “paid on an hourly basis and are eligible

for overtime, double-time and premium pay.” AR0408. It describes the “Base Rate of Pay” and

the “Regular Rate of Pay,” as follows:

Base Rate of Pay: Every nonexempt employee has a base rate of pay, which is the

gross amount paid to the employee for one hour of work that does not qualify as

6 This approach also seems appropriate in light of Reliance’s request that the employer provide

Plaintiff’s regularly scheduled hours per week.

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overtime or double-time, without regard to any additional elements of the

employee’s earnings, such as shift differentials.

* * *

Regular Rate of Pay: If an employee’s straight time earnings for a given pay

period are based entirely on the base rate of pay, the employee’s base rate of pay

will equal the employee’s regular rate of pay. However, if the employee received

other includable compensation during a pay period (such as shift differential), the

employee’s regular rate of pay will be greater than the employee’s base rate of pay.

AR409-409 (emphasis in original). The policy explicitly states that shift differentials are

considered to be “includable compensation.”7 Accordingly, pursuant to the employer’s own

policies, payment for shift differentials is part of the employee’s “regular rate of pay.” Moreover,

Krueger’s response to Wright’s June 2, 2015, inquiry clearly stated that Plaintiff’s hourly rate was

“$52.7361 hourly, plus a separate night shift differential rate of $5.00 hourly for hours worked

between 1900 (7:00 pm) – 0700 (7.00 am).”8 AR 402.

Focusing on the employer’s definitions of “includable compensation,” “regular rate of

pay,” and “base rate of pay,” the Court concludes that the $5.00 per hour night shift differential

was part of her “Covered Monthly Earnings” under the insurance policy. See Perugini-Christen

v. Homestead Mortgage Co., 287 F.3d 624, 627 (7th Cir. 2002) (holding that district court correctly

looked to the employer bank’s characterization of branch profits in determining whether such

profits were part of covered monthly earnings).

7 Preceptor pay, charge relief pay, standby pay, Staffing Contingency Plan pay, reporting time pay,

minimum call-back guarantee and “Other includable compensation as required by law,” are also

listed as “includable compensation.” AR0409.

8 Notably absent from Krueger’s description of Plaintiff’s compensation were the terms “overtime”

and “double-time.” AR 402.

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IV. Conclusion

Applying, as it must, a de novo standard of review, the Court grants Plaintiff Jennifer Coats’

Motion for Judgment on the Administrative Record (Doc. 28) and denies Defendant Reliance

Standard Life Insurance Company’s Cross-Motion for Judgment on the Record (Doc. 31).

ENTERED THIS 11th day of June, 2019.

__________________________________

TERENCE C. KERN

United States District Judge

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