Schwalm v. Guardian Life Insurance Co. of America

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 10a0355p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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JOHN SCHWALM,

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Plaintiff-Appellant,

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No. 09-4275

v.

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GUARDIAN LIFE INSURANCE COMPANY OF

Defendant-Appellee. -

AMERICA,

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Appeal from the United States District Court

for the Northern District of Ohio at Cleveland.

No. 08-01451—Christopher A. Boyko, District Judge.

Argued: October 19, 2010

Decided and Filed: November 17, 2010

Before: MARTIN and McKEAGUE, Circuit Judges; LUDINGTON, District Judge.*

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COUNSEL

ARGUED: Michael A. Malyuk, LAW OFFICE OF MICHAEL A. MALYUK,

Cuyahoga Falls, Ohio, for Appellant. Elise Balkin Ice, ULMER & BERNE LLP,

Cleveland, Ohio, for Appellee. ON BRIEF: Michael A. Malyuk, Scott M. Kolligian,

LAW OFFICE OF MICHAEL A. MALYUK, Cuyahoga Falls, Ohio, for Appellant.

Elise Balkin Ice, ULMER & BERNE LLP, Cleveland, Ohio, Patricia A. Shlonsky,

ULMER & BERNE LLP, Columbus, Ohio, for Appellee.

*

The Honorable Thomas L. Ludington, United States District Judge for the Eastern District of

Michigan, sitting by designation.

1

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 2

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OPINION

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THOMAS L. LUDINGTON, District Judge. Appellant John Schwalm

(“Schwalm”) contends that Appellee Guardian Life Insurance Company of America’s

(“Guardian”) decision to terminate his long-term disability benefits was arbitrary and

capricious. See Employee Retirement Income Security Act of 1974 (“ERISA”)

29 U.S.C. §§ 1001–1461 (2006). The district court reviewed the administrative record,

determined that Guardian’s decision was supported by substantial evidence, and

dismissed Schwalm’s complaint. We AFFIRM.

I.

Schwalm injured his back on July 2, 1999. The initial “twinge,” felt while lifting

luggage on a business trip, turned out to be a herniated disk that required surgery. The

first surgery in November 1999 made matters worse, and Schwalm returned for a second

surgery on December 31 of that year. The second surgery initially provided relief, but

Schwalm’s back pain steadily increased. In 2002, he sought a second opinion from Dr.

Louis Keppler, an orthopedic surgeon at the Cleveland Clinic. On December 5, 2002,

Dr. Keppler performed a spinal fusion surgery on Schwalm’s L-4 and L-5 vertebrae.

Recovery was difficult because of complications during the surgery and continued back

pain, but Schwalm attempted to return to work on a limited basis in February of 2003.

At the time, Schwalm was employed as the chief administrative officer of Acero, Inc.,

a technology company based in Cleveland, Ohio. He had previously served as chief

executive officer of Acero, and as an executive with other companies. Schwalm earned

a base salary of $140,000 per year.

On March 13, 2003, Schwalm completed an application for long-term disability

benefits from Guardian. Schwalm was covered by a group insurance policy issued to

Acero employees. Guardian provided the employees with life insurance and long-term

disability insurance pursuant to an ERISA-qualifying plan. The plan provides two

definitions of disability. The first definition is applicable during the two years

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 3

immediately following the date the insured applies for benefits. In this case, that period

began on March 13, 2003 and concluded on March 13, 2005. During this period, which

Guardian refers to as “the own occupation period,” the insured is “disabled” if “physical,

mental or emotional limits caused by a current sickness or injury” leave the insured

person “not able to perform, on a full-time basis, the major duties of [his] own

occupation.” After March 13, 2005, the second definition applies. During this period,

the insured is disabled if he remains “not able to perform, on a full-time basis, the major

duties of any gainful work.” The plan also defines the term “gainful work” as “[w]ork

for which you are or may become qualified by: (a) training; (b) education; or

(c) experience. Such work must also be consistent with the level of your insured

earnings.”

Guardian reviewed the application, determined Schwalm was disabled pursuant

to the “own occupation” definition, and mailed the first benefit payment on May 1, 2003.

Schwalm received $7,000 per month—sixty percent of his base salary.

Initially, Schwalm and Guardian both believed that he would be able to return

to work in July 2003, but persistent back pain and concentration problems associated

with the analgesic pain medications he had been prescribed delayed his return. Although

doctors were unable to identify the cause of the pain in an MRI, Schwalm and Dr.

Keppler scheduled a procedure for March 18, 2004 to remove the fusion hardware from

his back. Dr. Keppler believed that the presence of the hardware, as well as a substantial

amount of scar tissue around it, may have been causing the continued pain. The surgery,

however, did not significantly improve Schwalm’s condition and limitations due to back

pain continued. Guardian’s records show that Schwalm’s anticipated return to work was

repeatedly delayed because of the pain and cognitive side effects of the medication.

Following the surgery, Dr. Keppler also performed a nerve block, but the

procedure did not significantly reduce Schwalm’s pain. Dr. Keppler eventually referred

Schwalm to Dr. Edwin Covington in the Cleveland Clinic’s pain management division

for an initial appointment on February 8, 2005. Dr. Covington diagnosed Schwalm with

post-laminectomy syndrome with moderate functional impairment and prescribed

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 4

Maprotiline for pain and quinine for leg cramps. At various times, Schwalm’s doctors

also prescribed Kadian, Vicodin, Effexor, methadone, Lyrica, and Oxycontin to help

manage Schwalm’s pain, as well as other medications to aid sleep and control side

effects. After consulting with Dr. Covington for several months, Schwalm remained

unable to return to work because of the pain and the side effects associated with the

medications.

In April 2005, Guardian scheduled an independent medical exam (“IME”) with

Dr. Michael Harris for May 16, 2005. Guardian also arranged for surveillance of

Schwalm’s activities for two days before and two days after the IME. Guardian was

apparently concerned Schwalm might not be disabled because he was difficult to reach

on the telephone. Schwalm also reported to Guardian that he would occasionally go to

the office even though he was not working.

In the IME report, Dr. Harris reviewed the notes and records from Schwalm’s

visits with Dr. Keppler, a questionnaire concerning Schwalm’s daily activities, X-rays

from September 2003, and an MRI from October 2003. Dr. Harris also discussed

Schwalm’s reported symptoms, which included a pain-level range between four and

eight out of ten. Schwalm described the pain as “aching,” and sometimes “sharp” or

“stabbing.” The pain began in his lower back and “radiat[ed]” down his right buttock,

thigh, lower leg, and foot. Schwalm indicated he could sit for sixty to ninety minutes,

stand in one position for ten to fifteen minutes, or walk for forty-five minutes. Schwalm

told Dr. Harris he needed to lie down once or twice per day to rest.

Dr. Harris’s physical examination noted “no obvious distress” or “exaggerated

pain behaviors or magnification.” He observed some tenderness and reduced sensation

in Schwalm’s lower back. He described Schwalm’s gait as “independent” and his

strength as “normal,” but he also noted limits to his range of motion. Dr. Harris

indicated that Schwalm had “significant physical limitations and loss of function” due

to the injury and subsequent surgeries. He noted that Schwalm could “function at a

sedentary level” with “significant accom[m]odations,” including the ability to lie down

several times per day to rest his back. Dr. Harris also observed that “the opioids do

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 5

interfere with his level of cognition and although he functions independently, I am not

convinced that he can make the appropriate decisions that need to be made at the level

of CEO of a technology company.” Dr. Harris concluded, “I do not believe that Mr.

Schwalm is capable of working as a CEO at full capacity.”

Two months after the May 16, 2005 exam, Dr. Harris also reviewed the

surveillance video and report that was prepared on May 11, 16, and 17, 2005. The video

depicted Schwalm

moving around fairly comfortably; bending over into a car and carrying

what appeared to be a black case with a lap top over his shoulder without

any significant discomfort. He was seen carrying a small child without

any significant discomfort. He was also seen sitting in a coffee house

working at his lap top for a 12 minute stretch at one point and then

another 25 minutes, after that . . . . There were no signs of discomfort.

He had almost no position change except for occasionally bending his

knees or extending his knees.

Dr. Harris was particularly suprised by Schwalm’s activities at the coffee house, which

also included a twenty-one minute period there on a different date. Dr. Harris noted that

it “did strike” him that with his reported pain Schwalm “was able to [sit] in a hard

wooden chair at a coffee house” on both May 11 and May 16, 2005.

Nevertheless, Dr. Harris affirmed his conclusion that Schwalm would be unable

to resume his position as chief executive officer of a technology company. Although

Schwalm was “functioning at a level higher than one would expect” given the reported

pain level of four to eight, he did not alter his conclusion that Schwalm’s cognitive

limitations would prevent him from resuming his chief executive duties full time.

Clearly, he can easily work at a sedentary level doing some type of

management job especially if he is allowed to sit in a comfortable leather

chair with adjustable seat height and arm rest with a high back chair and

as long as he is allowed to change positions frequently. However, the

fact is he is s/p multiple spine surger[i]es, has significant scarring, and is

on significant doses of opioid medication which can alter cognitive

abilities. I still question his capability of functioning at the level of a

chief executive officer, 8 hrs a day, which requires quick decision

making, the results of which can have drastic financial consequences.

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 6

On June 22, 2005, a Guardian medical specialist reviewed the results of the IME,

and updated the review on August 11, 2005, after receiving Dr. Harris’s supplementary

surveillance report. The medical specialist concluded that Schwalm was still disabled,

even though he could “perform some type of managerial position,” because the

“complexity” of the duties associated with high-level business management may be

impossible while on high doses of opioid medications. Guardian continued to pay

Schwalm long-term disability benefits.

On June 1, 2005, Schwalm’s application for disability benefits from the Social

Security Administration was denied. The Social Security Administration determined

that Schwalm’s “condition is not severe enough” to keep him from working. The denial

letter noted that Schwalm “retain[ed] the ability to stand, sit, and walk for a normal work

day.” Despite the pain, the Social Security Administration observed that Schwalm was

“able to move about and use [his] arms, legs, hands, and back to perform some limited

types of activities.” Social security benefits were denied again on September 11, 2006.

Following the IME and the Social Security Administration’s initial denial,

Guardian continued to pay Schwalm’s disability benefits for another year without raising

new questions about his continued eligibility. Then, on August 30, 2006, Guardian

received treatment records compiled by Dr. Covington’s office from February 2005

through August 2006. The records indicated that Schwalm was spending a significant

amount of his time working in an executive management and finance role at a

technology start-up called Peritus Technologies, LLC (“Peritus”). Schwalm was

spending up to twelve hours per day at the company’s headquarters. He did, however,

leave early about three times a week to exercise and he would lie down to rest on a cot

in the offices three to five times per day for up to one hour at a time.

Guardian also received a “Cooperation Agreement” between Schwalm and

Peritus with an effective date of July 1, 2005. Peritus was a new company that hoped

to profit by connecting technology companies with qualified technology-industry

employees. The Cooperation Agreement provided that Schwalm was responsible for all

the company’s “executive management and financing functions including, business

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 7

planning, bookkeeping, governance, legal administration, marketing and all other non-

Business Development functions.” Schwalm’s partner in the new venture, another

former Acero employee named Kevin Marquart (“Marquart”), was responsible for all

business development, including “technology resources, establishing new clients and

developing strategic partners.” The Cooperation Agreement acknowledged Schwalm’s

injury and the side effects arising from the pain medications. It emphasized that

Schwalm would require a very flexible schedule and significant accommodations,

including frequent rest breaks of up to an hour and a cot to lie down on. Still, Schwalm

agreed to spend at least 160 hours per month on his “assigned business responsibilities.”

The Cooperation Agreement provided that Schwalm’s normal business hours would be

six in the morning until six in the evening, “which allows four hours for rest and

rehabilitation activities each day.”

Schwalm and Marquart agreed to equally divide the company’s equity, but with

different salary arrangements. Neither partner would receive any salary until the

company’s earnings before interest, taxes, and debt service exceeded the company’s

other operation expenses. Then, Marquart would receive his entire “targeted” yearly

salary of $100,000 before Schwalm would begin receiving his “targeted” yearly salary

of $115,000. The partners acknowledged that their salaries depended on revenue and

it “could be six months or longer” before they were paid at all. The Cooperation

Agreement provided for a 270-day probationary period for Schwalm, and three

“milestone assessment” meetings to evaluate Schwalm’s performance.

The records Guardian received in August 2006 also contained repeated

references to Schwalm’s alleged “denial” of cognition and alertness problems related to

the pain medications. Based on this new information, Guardian began another review

of Schwalm’s eligibility for benefits and made the initial arrangements for additional

medical tests, including a functional capacity evaluation (“FCE”).

On September 5, 2006, Schwalm visited Dr. Anantha Reddy, also of the

Cleveland Clinic, for a disability assessment. Schwalm reported to Dr. Reddy that he

was unable to return to his position as a chief executive officer because of chronic back

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 8

pain and “his mental condition due to medications” used to treat the pain. During the

visit, Dr. Reddy diagnosed “[m]echanical back pain, failed back syndrome, chronic pain,

intact motor strength, [and] chronic right leg pain.” Dr. Reddy suggested an MRI, X-ray,

and EMG, but Schwalm declined due to the expense. Dr. Reddy also recommended an

FCE, which Schwalm indicated would depend on insurance coverage.

On November 29, 2006, Schwalm underwent a FCE performed by Eric O’Brien,

a physical therapist. O’Brien concluded that Schwalm

was able to demonstrate physical tolerances within the medium category

of work on both the occasional and frequent basis. At minimum[,] he can

perform at a light physical demand level for a typical 8 hour day

according to the Standards of the US Department of Labor. A job

description was provided with the referral and indicated that the patient’s

job was in the sedentary classification. The patient is able to meet the

demands of a sedentary job. He was consistent for 15 of 15 measures of

isometric consistency.

O’Brien noted in the section of his report titled “subjective history” that mental side

effects from the prescribed pain medications limited Schwalm’s ability to work. He also

noted that Schwalm reported “difficulty thinking and communicating clearly.”

O’Brien’s objective testing, however, focused solely on Schwalm’s physical abilities.

O’Brien concluded, unequivocally, that Schwalm was physically able to perform the job

functions of a chief executive officer.

On April 18, 2007, Dr. Covington reviewed the FCE report at Guardian’s request

and concluded, “to my eye it seems reasonably correct.” He also observed that

“Schwalm scored at the medium level. However, they certified him as fit to function at

the light level of physical capacity given the fact that he works many hours a day but

spend[s] much of it lying down because of intractable pain. This seems a reasonably

appropriate determination.”

On February 26, 2007, Guardian received a vocational assessment (“VA”)

performed by Jacqueline M. Pickering, a certified rehabilitation counselor and licensed

professional counselor at The Sierra Group. Pickering reviewed Schwalm’s employment

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 9

history, the results of the FCE, a letter Schwalm wrote to Guardian on September 4,

2006, and the Peritus Cooperation Agreement. Pickering observed, based on the FCE

and Schwalm’s reported work activities, that Schwalm was capable of working an eight

hour day and that his principal complaint, cognitive difficulties, was not supported by

the objective evidence in the record. Pickering’s report emphasized that Schwalm had

drafted the Cooperation Agreement and the lengthy September 4, 2006 letter explaining

his condition, which were activities that seemed to require a relatively high-level of

mental capacity. Pickering also noted in the VA that the terms of the Cooperation

Agreement were unusual, including the lengthy probationary period, the absence of

records concerning the “milestone assessment” meetings, and the provision for full

compensation for Marquart before any compensation for Schwalm. The VA concluded:

“There also does not appear to be any objective evidence of cognitive difficulties, nor

any mention of basic coping techniques that were attempted to lighten the cognitive

load.”

On September 11, 2007, Guardian completed its review of Schwalm’s records

and determined that he was no longer “disabled” within the meaning of the long-term

disability insurance policy. Guardian discontinued his benefits as of that date. In a letter

explaining its decision, Guardian reviewed Schwalm’s medical records from February

8, 2005 through August 9, 2006, the FCE, and the VA. Guardian noted that Schwalm

had been working as many as twelve hours per day, five days per week, since July 1,

2005. Guardian observed that Schwalm’s medical records reflected mild to moderate

impairment due to pain, but that the pain was manageable with medications. Moreover,

the records reflected consistent denials by Schwalm of cognitive side effects from the

medications. Guardian noted that the FCE concluded, and Dr. Covington confirmed,

that Schwalm could perform at the “light level” of physical activity. It emphasized that

there was no objective evidence of cognitive difficulties in the record, and that Schwalm

had been working for more than a year, albeit without compensation, in an occupation

that was very similar to the one he left in 2002. It also acknowledged that Schwalm’s

voluntary agreement to work uncompensated until his partner was fully compensated

was “not standard business practice,” even in a probationary setting.

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 10

Schwalm promptly appealed on October 8, 2007, delivering a series of letters and

e-mails to Guardian protesting the decision to terminate his benefits. The appeal was

referred to Kelly Holmes, a Guardian “Adjudication Procedural Specialist.” Schwalm

emphasized that he continued to suffer from debilitating pain and severe side effects

arising from the pain management medications. He argued that the Cooperation

Agreement evidenced a “vocational rehabilitation” project that he embarked on with a

friend in an effort to preserve “professional capital,” and not any ability to engage in

gainful work at a salary comparable to his former salary. Schwalm emphasized that his

performance at Peritus did not meet even “minimum expectations” and that the

accommodations provided by the company would not be available in a competitive work

environment.

Schwalm also provided “supporting documentation” to Holmes, including a

“Pain Disability Questionnaire,” additional medical records, his own list of reported

disabilities, and printouts from several websites with information about his conditions

and the reported side effects of his medications. Schwalm also stated that he was

“submitting a copy of Dr. Covington’s letter to Kelly Holmes which provides a number

of affirmative statements to put proper context around statements and inferences in the

Medical Records which were used inappropriately by Guardian in the initial review.”

The letter was actually prepared by Schwalm himself, and the copy included in the

record was never signed by Dr. Covington. Indeed, when Guardian asked Dr. Covington

about the letter, Dr. Covington emphasized that Schwalm had prepared it.

Schwalm also retained counsel to assist in his appeal, and in early 2008, he

underwent a vocational evaluation (“VE”) at his attorney’s request. The VE was

performed by Kathleen L. Reis, a certified vocational rehabilitation counselor at

Allwork, Inc., in Cleveland. Reis reviewed the FCE, information from Dr. Covington,

information about Schwalm’s medications, the VA, the IME from Dr. Harris, Guardian’s

September 11, 2007 termination letter, Schwalm’s resume, and writing samples from

before and after the disability onset date. Reis also interviewed Schwalm, his wife, and

Marquart, and met with Schwalm a second time at the Peritus offices.

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 11

Reis observed that Schwalm “appeared to have word-finding difficulty,” and

frequently provided rambling or off-topic answers to her questions. Reis also noted that

he “exhibited pain behaviors,” including “weight shifting, grimacing, and unannounced

changes of posture.” She reported that his post-disability writing samples were “full of

effort” but “hard to follow” because they “mixed first and third person, were full of

incomplete sentences, and awkward constructions.” His pre-disability writing samples,

by contrast, were “concise” and “on point.”

Reis concluded that Schwalm’s position at Peritus was not “competitive

employment.” She acknowledged that he may be able to meet the physical demands of

his “own occupation” or other “gainful work,” but she emphasized that his cognitive

limitations left him unable to perform any job with a salary similar to what he earned at

Acero. She noted that the policy definition of “gainful work” requires, according to

Guardian’s termination letter, that the insured be able to earn at least eighty percent of

his pre-disability salary before benefits are terminated. Reis concluded that Schwalm

was not capable of performing any job paying $112,000 annually, and as a result, he

remains disabled within the meaning of the policy.

On January 31, 2008, Schwalm visited Dr. Nagy A. Mekhail, head of the

Cleveland Clinic’s pain management division, who noted that Schwalm was no longer

working and was dependent on his friends and family for income. Dr. Mekhail noted

that Schwalm was “interested in exploring his interventional options” because he hoped

to return to work and he believed the medications negatively impacted his concentration.

Dr. Mekhail suggested that Schwalm was a “good candidate for neuromodulation,” a

medical procedure involving electrical stimulation of the spinal cord to relieve pain. Dr.

Mekhail also reviewed the results of an MRI performed on January 9, 2008—Schwalm’s

first MRI since 2004. He observed that the MRI showed damage at the L3/L4 level, in

addition to the existing L4/L5 damage. Dr. Mekhail diagnosed Schwalm with post-

laminectomy syndrome-lumbar, lumbrosacral spondylosis, and lumbrosacral neuritis.

He recommended that Schwalm continue with the course of treatment prescribed by Dr.

Covington.

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 12

On May 20, 2008, Schwalm’s attorney delivered an eleven-page letter to

Guardian, which reviewed the record and emphasized favorable evidence. On June 12,

2008, Guardian issued its final denial of Schwalm’s long-term disability claim. In a

letter signed by Holmes, Guardian noted that it had reviewed all of the additional

information received during the appeals process, and that it determined the decision to

stop benefits on September 12, 2007 was correct. Guardian emphasized that Schwalm

is responsible for furnishing medical evidence supporting the existence of a disability,

and that he had not met that burden.

On June 16, 2008, Schwalm filed a complaint in the U.S. District Court for the

Northern District of Ohio, challenging Guardian’s decision to terminate his long-term

disability benefits. On September 4, 2009, the Honorable Christopher A. Boyko

awarded judgment to Guardian based on his review of the administrative record. Judge

Boyko determined that there was substantial evidence supporting Guardian’s decision

to terminate benefits, and that it was not arbitrary and capricious to give more weight to

Dr. Covington’s records, the FCE, and The Sierra Group VA, than to the Allwork VE

and the IME performed by Dr. Harris.

II.

The district court’s findings of fact are reviewed for clear error. Sanford v.

Harvard Indus., Inc., 262 F.3d 590, 594–95 (6th Cir. 2001). Conclusions of law,

including the determination of the appropriate standard by which the plan

administrator’s decisions are considered, are reviewed de novo. Id.

Section 502(a)(1)(B) of ERISA authorizes an individual to bring an action “to

recover benefits due to him under the terms of his plan, to enforce his rights under the

terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”

29 U.S.C. § 1132(a)(1)(B). Generally, federal courts review a plan administrator’s

decision to deny benefits de novo. Sanford, 262 F.3d at 595 (citations omitted). But,

where the plan administrator reserves discretionary authority to determine eligibility and

construe policy terms, the more deferential arbitrary and capricious standard of review

applies. Id. As the parties acknowledge, the arbitrary and capricious standard applies

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 13

in this case because the policy grants Guardian “discretionary authority to determine

eligibility for benefits and to construe the terms of the plan with respect to claims.”

The arbitrary and capricious standard is “the least demanding form of judicial

review of administrative action. When it is possible to offer a reasoned explanation,

based on the evidence, for a particular outcome, that outcome is not arbitrary or

capricious.” Shields v. Reader’s Digest Ass’n, Inc., 331 F.3d 536, 541 (6th Cir. 2003)

(quotation marks and citation omitted). The arbitrary and capricious standard requires

courts to review the plan provisions and the record evidence and determine if the

administrator’s decision was “rational.” Id. Although the evidence may be sufficient

to support a finding of disability, if there is a reasonable explanation for the

administrator’s decision denying benefits in light of the plan’s provisions, then the

decision is neither arbitrary nor capricious. Williams v. Int’l Paper Co., 227 F.3d 706,

712 (6th Cir. 2000). Yet the deferential standard of review does not mean courts should

“rubber stamp[]” a plan administrator’s decision—a court must review the quantity and

quality of the medical evidence on each side. Evans v. UnumProvident Corp., 434 F.3d

866, 876 (6th Cir. 2006). A decision reviewed according to the arbitrary and capricious

standard must be upheld if it results from “a deliberate principled reasoning process” and

is supported by “substantial evidence.” Baker v. United Mine Workers of Am. Health

& Ret. Funds, 929 F.2d 1140, 1144 (6th Cir. 1991).

A court may consider only that evidence presented to the plan administrator at

the time he or she determined the employee’s eligibility in accordance with the plan’s

terms. The court’s review is thus limited to the administrative record. See Wilkins v.

Baptist Healthcare Sys., Inc., 150 F.3d 609, 618 (6th Cir. 1998).

III.

Although Schwalm raises numerous objections to Guardian’s decision to

terminate his benefits, his arguments can be divided into two categories. First, Schwalm

contends that Guardian’s decision was arbitrary and capricious because Guardian did not

consider all of the evidence in the record and misinterpreted other evidence, including

its own policy. Second, Schwalm contends that Guardian’s decision is not supported by

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 14

substantial evidence. The first category of objections focuses on the way Guardian made

the decision; the second category focuses on whether that decision was correct.

A.

Schwalm contends that Guardian’s termination of his benefits was arbitrary and

capricious because the company ignored the “insured earnings” requirement in the plan’s

definition of disability; did not properly consider cognitive limitations, as reported by

Dr. Harris and Reis; “cherry picked” the evidence which was provided to independent

evaluators, like The Sierra Group; and overemphasized the Cooperation Agreement even

though Schwalm explained his employment at Peritus was not competitive. Schwalm

also contends that the district court was too deferential to Guardian in light of the

inherent conflict of interest created when the plan administrator is also required to pay

the benefits due under the plan.

Schwalm first contends that Guardian’s final denial letter misinterpreted the

plan’s second definition of disability because it did not acknowledge the salary

requirement in the definition of gainful work. Under the plan, Schwalm continued to be

disabled unless he could perform “gainful work” at a salary “consistent with” his insured

earnings of $140,000. Schwalm acknowledges that he may be able to perform sedentary

work, but not sedentary work for compensation “consistent with” $140,000 per year.

Although the policy does not define “consistent with,” it does provide a limit to

“the amount of income [the insured person] may earn, or may be able to earn, and still

be considered disabled.” It continues: “Payments from this plan will also end if [the

insured person is] able to earn more than 80% of [his] insured earnings.” Accordingly,

regardless of what “consistent with” means as it is used in the definition of “gainful

work,” if Schwalm was “able to earn” $112,000 per year, he no longer qualified for

long-term disability benefits under the plan.

Moreover, in its June 12, 2008, letter concluding that Schwalm was no longer

disabled, Guardian gives substantial attention to Schwalm’s physical and cognitive

capabilities and his ability to return to work at a salary consistent with his insured

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 15

earnings. Guardian also provides a definition of gainful work, noting that it must

provide a salary that is consistent with insured earnings. Guardian further acknowledges

that Schwalm reported to his doctors and to Allwork’s Kathleen Reis that he had “lost

the ability to earn a living” and that he was working as many as fifty hours per week for

no salary. Guardian dismissed Schwalm’s contention that he could no longer earn a

comparable salary, concluding that Reis’ statement that he “lost his ability to earn a

living is not supported by medical information we have in [the] claim file.”

Notably, the Cooperation Agreement provided for a salary target at Peritus of

$115,000 per year. Although Schwalm had not yet begun to draw a salary, the

agreement provides some indication of Schwalm’s own salary expectations and his own

perceived ability to perform effectively at a high level. The definition of disability

provided by the plan does not require that the insured person actually earn a salary

consistent with his pre-disability salary, only that he “is able to perform . . . the major

duties” of such an occupation. Actual earnings are relevant elsewhere in the policy, but

not to the determination of whether the insured person is disabled.

Guardian explained in the letter that the decision to stop benefit payments was

not based on any actual earnings, but based on the decision that Schwalm was no longer

disabled within the meaning of the plan. The decision could not be based on actual

earnings because Schwalm did not provide tax returns or other documentation to confirm

his earnings during the disability period, despite repeated attempts by Guardian to gain

access to the information and Schwalm’s ongoing obligation under the plan to provide

the information. As Guardian explained in the letter, “our review of Mr. Schwalm’s

appeal does not include a final decision regarding any income earned by him during the

period of disability claimed and how such earnings affect his claimed benefits under this

plan.” Guardian specifically explained that it was discontinuing benefits because the

medical evidence demonstrated he was able to return to gainful employment at a salary

consistent with his insured earnings.

Schwalm relatedly contends that Guardian ignored evidence of cognitive

limitations that would have prevented him from returning to an executive level job.

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 16

Schwalm argues that even if, as Dr. Harris concluded after the IME, Schwalm could

return to some type of management position, the cognitive limitations prevented the type

of high-level thinking required of chief executives or any other position paying $140,000

per year. Schwalm relies primarily on Dr. Harris’ IME report, his own affidavit, the

affidavit of his partner, and the VE performed by Reis.

Guardian emphasizes in response that Schwalm has the burden of proving

continued disability, and that the portions of the record that address cognitive

impairments are from 2005 and outdated. Perhaps the single most important piece of

evidence, from Schwalm’s point of view, is the Allwork VE that was completed by Reis

on March 13, 2008. Reis interviewed Schwalm, his wife, and his partner, but she

performed no objective testing. She is a certified rehabilitation counselor who is

qualified to evaluate Schwalm’s ability to perform as a chief executive based on a given

set of physical and mental limitations, but she is not qualified to diagnose physical or

mental limitations. She is not a medical professional. Moreover, Guardian did not

ignore Reis’ assessment of Schwalm’s ability to return to work. Rather, it concluded

that it was unsupported by objective evidence and rejected it in favor of other record

evidence. The conclusion was supported by substantial evidence, including the notes

prepared by Dr. Covington’s nurse repeatedly noting Schwalm’s long hours and denial

of cognition problems, The Sierra Group VA noting Schwalm’s physical ability to work

and lack of objective signs of cognitive problems, and Schwalm’s own work product.

Schwalm next contends that Guardian “cherry picked” among the available

evidence, emphasizing those parts of the administrative record that were favorable to

Guardian and ignoring the parts of the record that were favorable to Schwalm.

Specifically, Schwalm argues that The Sierra Group VA should be disregarded because

Guardian “cherry picked” among the evidence it provided to The Sierra Group in an

attempt to manipulate the outcome of the report. Cf. Spangler v. Lockheed Martin

Energy Sys., Inc., 313 F.3d 356, 361–62 (6th Cir. 2002) (concluding it is arbitrary and

capricious for a insurance provider to rely on a vocational consultant’s report in making

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 17

a disability determination where the provider “cherry picked” the insured’s file “in hopes

of obtaining a favorable report”).

Although Pickering, The Sierra Group counselor who completed the report, never

examined Schwalm, Pickering did examine the medical records from Dr. Covington’s

office, the results of the FCE, the Cooperation Agreement, and Schwalm’s September 4,

2006 letter to Guardian. Pickering also reviewed a newspaper article concerning

Schwalm’s former employer, Acero, noting that the company had fallen behind on

servicing its debts as early as mid-2002 and that it had laid off sixty of its one hundred

employees in September 2002, while Schwalm was still chief executive officer.

Pickering’s review accurately summarized the record at the time and Guardian was not

arbitrary or capricious in its evaluation of the report.

Moreover, three of the four items that Schwalm contends The Sierra Group

should have been provided with were either irrelevant or unavailable at the time of VA.

There was no reason to review the plan’s definition of disability because the VA was not

intended to evaluate whether Schwalm was disabled within the meaning of the plan.

Rather, it was intended to evaluate his “status and occupation.” Similarly, the affidavits

prepared by Marquart and Schwalm, although perhaps relevant to The Sierra Group’s

inquiry, were completed in March 2008, more than one year after the VA was conducted.

This is not a situation, as in Spangler, where the plan administrator picked one aberrant

medical evaluation from the administrative record and provided it to a “neutral” reviewer

for evaluation. See 313 F.3d at 361–62.

Schwalm also contends that Guardian placed too much weight on the Peritus

Cooperation Agreement, and not enough on other evidence indicating the Cooperation

Agreement did not accurately summarize his activities at Peritus. He contends that

Peritus was less successful than its partners had hoped, due in part to Schwalm’s

deficient performance, and that Schwalm never received any compensation beyond

medical benefits and reimbursement of business expenses. Schwalm asserts that his

duties consisted primarily of bookkeeping, and that the nature of the

business—recruiting qualified technology industry employees for client

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 18

companies—meant that Marquart’s business development role shouldered most of the

responsibilities.

First, Guardian does not contend that Schwalm’s activities at Peritus constituted

“gainful work,” but that those activities are some evidence of Schwalm’s ability to

perform gainful work. Second, although Schwalm consistently characterizes his Peritus

activities as “vocational rehabilitation” rather than “work,” it was not unreasonable to

conclude that a person who devotes nearly twelve hours per day to an office, managing

the administration and finance of a company, has the ability to “work.” Many of

Schwalm’s hours at Peritus may have been dedicated to rest and personal obligations,

but some were devoted to business. However those hours doing business are

characterized, Schwalm’s activities at Peritus are some evidence of his ability to perform

“gainful work” and Guardian’s consideration of those activities was not arbitrary or

capricious.

Schwalm next contends that the district court did not adequately consider the

inherent conflict of interest in Guardian’s review of Schwalm’s disability claim.

Guardian, after all, is both the payor of any long-term disability benefits and the

administrator vested with discretion to determine his eligibility for those benefits.

Indeed, such an inherent conflict of interest is “one factor” that must be considered when

evaluating a plan administrator’s decision to deny benefits under ERISA. Metro. Life

Ins. Co. v. Glenn, 554 U.S. 105, 128 S. Ct. 2343, 2351 (2008); Firestone Tire & Rubber

Co. v. Burch, 552 U.S.101, 115 (1989). But there are many other factors a reviewing

judge must consider as well. Glenn, 128 S. Ct. at 2351. In its opinion below, the district

court acknowledged Guardian’s conflict of interest, but concluded, based on the record

as a whole, that its decision to terminate Schwalm’s benefits was nevertheless supported

by substantial evidence. The district court’s consideration of the inherent conflict of

interest was proper.

The Supreme Court made clear in Glenn that such a conflict is a red flag that may

trigger a somewhat more searching review of a plan administrator’s decision, but the

arbitrary and capricious standard remains in place. Glenn, 128 S. Ct. at 2350. Guardian

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 19

did not refuse to consider Schwalm’s evidence of disability. See Killin v. Healthsource

Provident Adm’rs, Inc., 152 F.3d 514, 521 (6th Cir. 1998). It accurately summarized and

considered the evidence Schwalm submitted after the initial denial of benefits, including

the Allwork VE and Dr. Reddy’s analysis. Then, it determined that Schwalm retained

the physical capability to perform a sedentary job, like a chief executive officer, and that

there was insufficient medical evidence of mental limitations to prove disability.

Guardian provided a thorough review of the record and there is no indication that the

review was improperly influenced by the inherent conflict of interest.

B.

After Schwalm’s procedural objections to Guardian’s decision are

eliminated—i.e. objections to how the decision was made—Schwalm’s principal

contention is that Guardian simply made the wrong decision. On that score, the

administrative record does provide some contradictory evidence. Dr. Covington’s

records alone contain numerous statements suggesting physical and cognitive

impairment, as well as a substantial number of statements suggesting exactly the

opposite. Indeed, as Schwalm emphasizes, Dr. Covington’s records often contain

contradictory evidence from the same visit.1 Still, the evidence suggesting that Schwalm

suffered from a continuing disability is not so one-sided that the decision to deny

benefits can be considered arbitrary or capricious.

The FCE, The Sierra Group VA, Dr. Covington’s records and his comments on

the FCE, Dr. Harris’ IME, the denial of benefits by the Social Security Administration,

and even Schwalm’s own VE from Allwork suggest that Schwalm was physically

capable of returning to a sedentary job. There is some evidence that lingering pain and

the side effects from the pain medications would prevent the high-level work required

1

Dr. Covington’s records provide that Schwalm repeatedly denied problems with cognition due

to the analgesic pain medications he had been prescribed during monthly consultations with Dr.

Covington’s nurse, Joan Jersan. But they also contain many references to specific problems that could be

characterized as “cognition” problems, including complaints about lack of concentration and memory

lapses. Schwalm characterizes the references in Jersan’s notes to his denial of cognition problems as

meaningless boilerplate recorded by a nurse rather than a doctor. The Cleveland Clinic, however, has

stood by the accuracy of the notes and Schwalm has not provided any reason to suspect that Jersan

included the notes without asking the relevant question.

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 20

of a chief executive officer, particularly the Allwork VE, the affidavits from Schwalm

and his partner, and the 2005 IME. That evidence, however, was based on Schwalm’s

subjective representations concerning the side effects of his medications and Guardian

was entitled to discount it based on the other evidence in the record. For example,

Schwalm drafted the Cooperation Agreement, which is a brief but comprehensive

agreement between the partners concerning their respective obligations and entitlements

with respect to Peritus. Moreover, the agreement provided a rather extensive list of

duties for Schwalm, including performing all of the company’s executive and

administrative tasks and working at least 160 hours per month. The accommodations

provided to Schwalm were significant, but acceptable to the company. Schwalm’s later

representations to the contrary were self-serving and contradicted many of Schwalm’s

statements to his medical providers.

Schwalm’s plan required him to provide objective evidence to support a

continued finding of disability. Cf. Cooper v. Life Ins. Co. of N. Am., 486 F.3d 157, 166

(6th Cir. 2007) (noting it is reasonable for a plan administrator to require “a claimant to

provide objective medical evidence of disability”). Schwalm did not provide the

necessary information. Indeed, until the appeals process began, Schwalm focused on his

physical limitations and began emphasizing his cognitive limitations only after his

benefits had already been terminated.

In response to Guardian’s concerns about the lack of objective evidence of

cognitive limitations, Schwalm provided Guardian with a list of medications and

printouts from several Internet sites outlining their potential side effects. The printouts,

while certainly some evidence that opioid pain medications can lead to cognitive side

effects, see Smith v. Cont’l Cas. Co., 450 F.3d 253, 264–65 (6th Cir. 2006), do not

demonstrate that Schwalm was disabled by those side effects in this case. Schwalm’s

medications were carefully managed by Dr. Covington and Jersan, and often changed

in response to Schwalm’s concerns about mental sharpness and memory. On one

occasion, Dr. Covington noted that he could “not detect” any evidence of cognitive

limitations despite Schwalm’s concerns. Schwalm repeatedly asked Dr. Covington for

No. 09-4275 Schwalm v. Guardian Life Insurance Co. Page 21

an opinion on whether Schwalm was able to return to work, but Dr. Covington declined.

Unlike the treating physician in Smith, Dr. Covington never suggested that the

medications would leave “anyone” unable to function. See 450 F.3d at 264–65.

IV.

Substantial evidence supports Guardian’s conclusion that Schwalm was no longer

disabled within the meaning of the plan. Accordingly, the district court’s decision is

AFFIRMED.