Schexnayder v. Hartford Life & Accident Insurance

Case: 08-30538 Document: 00511049790 Page: 1 Date Filed: 03/12/2010

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

March 12, 2010

No. 08-30538 Charles R. Fulbruge III

Clerk

KELVIN SCHEXNAYDER

Plaintiff–Appellee

v.

HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY

Defendant–Appellant

Appeal from the United States District Court

for the Middle District of Louisiana

USDC No. 3:07-CV-00084

Before JOLLY, PRADO, and SOUTHWICK, Circuit Judges.

PRADO, Circuit Judge:

Kelvin Schexnayder sued Hartford Life and Accident Insurance Company

(“Hartford”) under the Employee Retirement Income Security Act of 1974

(“ERISA”), Pub. L. No. 93-406, 88 Stat. 829. Schexnayder asserted that Hartford

wrongly denied him disability benefits. The district court granted summary

judgment to Schexnayder, holding that Hartford abused its discretion in denying

Schexnayder’s claim. In addition, the district court granted Schexnayder

attorneys’ fees. For the following reasons, we AFFIRM the district court’s order

granting summary judgment to Schexnayder, but REVERSE the district court’s

order granting Schexnayder attorneys’ fees.

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I. FACTUAL AND PROCEDURAL BACKGROUND

Schexnayder worked for CF Industries as a chemical operator from

February 1981 until June 2003, when severe back and leg pain forced him to

cease working. Although doctors performed back surgery on Schexnayder in

2003, he continues to suffer from recurrent pain in his back and extremities,

rendering him at least partially disabled.

Schexnayder was covered by a Long Term Disability Insurance Plan (the

“Plan”) sponsored by CF Industries for its employees. The Plan was funded by

a group long-term disability insurance policy issued by Continental Casualty Co.

Pursuant to an endorsement, Hartford Life Group Insurance Co. became the

underwriting company for this policy.1 In addition to funding the benefit plan,

Hartford had sole discretionary authority to determine eligibility for benefits

under the Plan and to interpret its terms and provisions.

After Schexnayder ceased working and filed for benefits under the Plan,

he was entitled to receive up to twenty-four months of disability payments if

Hartford determined that he was unable to perform his regular occupation.

After this initial period, Schexnayder was entitled to disability benefits only if

he was unable to engage in any occupation for which he was or became qualified.

Concluding that Schexnayder was disabled from his regular occupation as a

chemical operator, Hartford paid Schexnayder disability benefits under the Plan

for his initial, twenty-four month “regular occupation” period. During this

period, the Social Security Administration (the “SSA”) determined that

Schexnayder was totally disabled, meaning that he could not perform any work,

and it authorized him to receive disability payments. After receiving this award,

Schexnayder promptly reimbursed Hartford for the disability payments he had

received through the SSA.

1

Hartford Life Group Insurance Co. eventually merged into Hartford Life and Accident

Insurance Co., the Appellant in this matter.

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In November 2004, Hartford notified Schexnayder that his “regular

occupation” payments would end in November 2005 and that the information it

had received from his doctors did not support a finding that he remained

disabled from working in any occupation. Schexnayder disputed this

determination and provided additional medical documentation in an effort to

show that he was totally disabled. Hartford decided to extend Schexnayder’s

benefits beyond November 2005 while it continued to consider his disability

claim. After further review, Hartford informed Schexnayder that as of January

31, 2006, he would receive no further benefits under the Plan because the

medical and vocational information it had examined did not support the

conclusion that Schexnayder remained disabled from any occupation.

Schexnayder appealed this decision through Hartford’s internal appeals process.

Accordingly, Hartford conducted a final review of the evidence. In June 2006,

Hartford informed Schexnayder that it would uphold its decision to terminate

benefits because Schexnayder was functionally capable of performing a number

of occupations requiring only a sedentary level of exertion.

Schexnayder then filed suit in federal court seeking review of Hartford’s

decision to terminate his disability benefits. In August 2007, the parties

submitted cross motions for summary judgment. The district court granted

Schexnayder’s motion, concluding that Hartford abused its discretion in

terminating Schexnayder’s disability benefits. In addition to reinstating

Schexnayder’s benefits under the Plan, the court ordered Hartford to pay past

long-term disability benefits retroactive to January 31, 2006 (including pre- and

post-judgment interest), and Schexnayder’s attorneys’ fees and costs. The

district court entered a final judgment and Hartford timely appealed.

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II. JURISDICTION AND STANDARD OF REVIEW

We review the district court’s grant of summary judgment in an ERISA

case de novo, applying the same standard as the district court. Wade v. Hewlett-

Packard Dev. Co. LP Short Term Disability Plan, 493 F.3d 533, 537 (5th Cir.

2007). Because the Plan gave Hartford discretionary authority to determine

eligibility for benefits as well as to construe the Plan’s terms, we review

Hartford’s denial of benefits for an abuse of discretion. See Corry v. Liberty Life

Assurance Co. of Boston, 499 F.3d 389, 397 (5th Cir. 2007); see also Firestone Tire

& Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). “A plan administrator abuses

its discretion where the decision is not based on evidence, even if disputable,

that clearly supports the basis for its denial.” Holland v. Int’l Paper Co.

Retirement Plan, 576 F.3d 240, 246 (5th Cir. 2009) (internal quotation marks

and citations omitted). “If the plan fiduciary’s decision is supported by

substantial evidence and is not arbitrary or capricious, it must prevail.” Ellis v.

Liberty Life Assurance Co. of Boston, 394 F.3d 262, 273 (5th Cir. 2004).

We similarly review a district court’s award of attorneys’ fees in an ERISA

case for an abuse of discretion. Bellaire Gen. Hosp. v. Blue Cross Blue Shield of

Mich., 97 F.3d 822, 832 (5th Cir. 1996).

III. DISCUSSION

A. Benefits Determination

In reviewing the plan administrator’s decision, we “take into account . . .

several different considerations.” Metro. Life Ins. Co. v. Glenn, 128 S. Ct. 2343,

2351 (2008). These factors are case-specific and must be weighed together before

determining whether a plan administrator abused its discretion in denying

benefits. Id. Any one factor may “act as a tiebreaker when the other factors are

closely balanced, the degree of closeness necessary depending upon the

tiebreaking factor’s inherent or case-specific importance.” Id.

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The interaction between the factors and the substantial evidence test is a

relatively new issue after the Supreme Court’s decision in Glenn. We have

considered the interplay in only one prior published decision—Holland—in

which we found that the conflict of interest was a minimal factor and that the

evidence was more than sufficient to support the denial of benefits. 576 F.3d at

251. However, a reviewing court may give more weight to a conflict of interest,

where the circumstances surrounding the plan administrator’s decision suggest

“procedural unreasonableness.” Glenn, 128 S. Ct. at 2352. Applying Glenn’s

“combination-of-factors” method of review, we give more weight to the conflict

of interest because Hartford’s decision here suggests procedural

unreasonableness.

1. Medical Evidence

Schexnayder suffers from chronic degenerative disc disease, carpel tunnel

syndrome, and spinal stenosis. Schexnayder and Hartford’s physicians,

however, disagree on the level of Schexnayder’s pain and how it affects his

ability to perform full-time work. The Supreme Court has held that “courts have

no warrant to require administrators automatically to accord special weight to

the opinions of a claimant’s physician,” but a plan administrator “may not

arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions

of treating physicians.” Black & Decker Disability Plan v. Nord, 538 U.S. 822,

834 (2003).

Although they equivocated during Hartford’s investigation, by 2005, three

of Schexnayder’s treating physicians found him incapable of performing

sedentary-level work. Schexnayder’s treating physicians found that

Schexnayder’s physical conditions caused him debilitating pain. Moreover, the

medical evidence showed that Schexnayder had significant spinal stenosis and

elevated spinal fluid protein, both of which support Schexnayder’s complaints of

pain.

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However, Hartford’s reviewing physicians concluded that Schexnayder was

capable of employment in a full-time, light-demand, or sedentary occupation.2

Hartford credited these conclusions as well as the results of a Functional

Capacity Evaluation (“FCE”), which indicated that Schexnayder was capable of

performing light sedentary work. In addition, Hartford found that

Schexnayder’s subjective complaints of pain, relied upon by the treating

physicians and noted in the FCE report, were “not consistent” with the objective

medical evidence.

The administrative record reveals that Hartford was presented with

conflicting medical evidence on the extent of Schexnayder’s disability, or more

specifically, whether he was capable of full-time, sedentary work. Ultimately,

Hartford credited its physicians who found that Schexnayder’s pain would not

prevent him from returning to work. Although Hartford based its decision on

substantial evidence, we must consider other factors under Glenn, such as the

conflict of interest and Hartford’s treatment of the SSA award.

2. Conflict of Interest

In Glenn, the Supreme Court stated that a structural conflict of interest

created by the plan administrator’s dual role in making benefits determinations

and funding the benefit plan “should be taken into account on judicial review of

a discretionary benefit determination.” Glenn, 128 S. Ct. at 2350 (internal

quotation marks and citation omitted). The Court held that a conflict “should

be weighed as a factor in determining whether there is an abuse of discretion.”

Id. “[C]onflicts are but one factor among many that a reviewing judge must take

into account.” Id. at 2351. The weight that this conflict will have relative to

2

Schexnayder argues that we should give little weight to Hartford’s reviewing

physicians, because they are not specialists in the area of his disability and did not physically

examine him. However, given their backgrounds, we find that the reviewing physicians had

the “appropriate training and experience in the field of medicine involved in the medical

judgment.” See 29 C.F.R. § 2560.503-1(h)(3)(iii).

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other factors changes, however, depending upon the circumstances of a

particular case. Id. at 2350–51. For example, a conflict of interest

should prove more important (perhaps of great importance) where

circumstances suggest a higher likelihood that it affected the

benefits decision, including, but not limited to, cases where an

insurance company administrator has a history of biased claims

administration. It should prove less important (perhaps to the

vanishing point) where the administrator has taken active steps to

reduce potential bias and to promote accuracy, for example, by

walling off claims administrators from those interested in firm

finances, or by imposing management checks that penalize

inaccurate decisionmaking irrespective of whom the inaccuracy

benefits.

Id. at 2351.

In Holland, the plan administrator established a trust to pay benefits to

which it made periodic, irrevocable, and non-reversionary payments. 576 F.3d

at 248–49. Therefore, “a decision to pay benefits [did] not directly affect

International Paper’s bottom-line.” Id. at 249. We found that the “the creation

of the trust diminishe[d], but d[id] not entirely negate, the impact of that

conflict.” Id. (citation omitted). The plan also took further steps to minimize

the conflict, such as requiring independent medical professionals to affirm that

they had no conflict of interest and that their compensation was not dependant

on the outcome of the case. Id. We therefore held that the “conflict [was] not a

significant factor.” Id.

In this case, Hartford both administered and paid for the Plan. Thus, a

decision to pay benefits affects Hartford’s bottom-line, because benefits

payments come directly from Hartford. As the district court noted, “Hartford,

as the administrator and insurer of the disability plan, potentially benefits from

every denied claim.” Schexnayder v. CF Indus. Long Term Disability Plan, 553

F. Supp. 2d 658, 663–64 (M.D. La. 2008). Hartford did not take any precautions

to avoid or minimize this conflict, such as “walling off claims administrators

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from those interested in firm finances or by imposing management checks that

penalize inaccurate decisionmaking irrespective of whom the inaccuracy

benefits.” Glenn, 128 S. Ct. at 2351. However, as discussed above, the weight

given to the conflict of interest depends partly on the other circumstances

surrounding Hartford’s decision. In this case, because the circumstances suggest

procedural unreasonableness, we believe that Hartford’s financial bias may have

played a part in its decision, and therefore the conflict is a more significant

factor.

3. Social Security Administration

Failure to address a contrary SSA award can suggest “procedural

unreasonableness” in a plan administrator’s decision. See id. at 2352. This

procedural unreasonableness is important in its own right and also “justifie[s]

the court in giving more weight to the conflict.” Id. “[A]n ERISA plan

administrator’s failure to address the Social Security Administration’s finding

that the claimant was ‘totally disabled’ is yet another factor that can render the

denial of further long-term disability benefits arbitrary and capricious.” Glenn

v. MetLife (Glenn I), 461 F.3d 660, 669 (6th Cir. 2006), aff’d, Glenn, 128 S. Ct at

2343.

The SSA determined that Schexnayder is fully disabled and unable to

perform any work, but Hartford did not address the SSA award in any of its

denial letters. Because Hartford failed to acknowledge an agency determination

that was in direct conflict with its own determination,3 its decision was

procedurally unreasonable. We agree with the Sixth Circuit’s conclusion in

Glenn I, that “[h]aving benefitted financially from the government’s

3

We do not require Hartford to give any particular weight to the contrary findings;

indeed, Hartford could have simply acknowledged the award and concluded that, based on the

medical evidence before it, the evidence supporting denial was more credible. It is the lack of

any acknowledgment which leads us to conclude that Hartford’s decision was procedurally

unreasonable and suggests that it failed to consider all relevant evidence.

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determination that [the plaintiff] was totally disabled” Hartford should have at

least acknowledged the SSA award. Id. at 669.

This procedural unreasonableness “justifie[s] the court in giving more

weight to [Hartford’s] conflict” because it suggests financial bias may have

affected Hartford’s decision. Glenn, 128 S. Ct. at 2352. We also consider the

failure to address the SSA’s decision as a factor in its own right. Although

substantial evidence supported Hartford’s decision, the method by which it made

the decision was unreasonable, and the conflict, because it is more important

under the circumstances, acts as a tiebreaker for us to conclude that Hartford

abused its discretion.

B. Attorneys’ Fees

Under ERISA, “the court in its discretion may allow a reasonable

attorney’s fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). In

deciding whether to award attorneys’ fees to a particular party,

a court should consider such factors as the following: (1) the degree

of the opposing parties’ culpability or bad faith; (2) the ability of the

opposing parties to satisfy an award of attorneys’ fees; (3) whether

an award of attorneys’ fees against the opposing parties would deter

other persons acting under similar circumstances; (4) whether the

parties requesting attorneys’ fees sought to benefit all participants

and beneficiaries of an ERISA plan or to resolve a significant legal

question regarding ERISA itself; and (5) the relative merit of the

parties’ positions. No one of these factors is necessarily decisive,

and some may not be appropriate in a given case, but together they

are the nuclei of concerns that a court should address in applying

section [1132(g)(1)].

Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir. 1980)

(citations and footnote omitted). The district court held that the first Bowen

factor weighed in favor of assessing attorneys’ fees against Hartford, because it

found that Hartford acted arbitrarily and capriciously when it ignored evidence

of Schexnayder’s disability from his treating physicians in favor of evidence that

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benefitted Hartford financially. The district court also awarded attorneys’ fees

in an effort to deter Hartford from acting in a similar manner with other

members of the Plan.

A finding of bad faith requires more than simply establishing that there

was a conflict of interest. See Carolina Care Plan Inc. v. McKenzie, 467 F.3d

383, 390 (4th Cir. 2006) (holding that although the record showed that the plan

administrator’s decision furthered its financial interest, the first factor in the

Bowen analysis did not weigh against the plan administrator absent evidence of

bad faith), abrogated on other grounds by Glenn, 128 S. Ct. at 2343. Instead, a

plaintiff must prove that the conflict of interest actually and improperly

motivated the decision. This higher standard separates those cases in which a

conflict of interest tips the scale in favor of reversing the plan administrator’s

benefits determination from those cases in which the plan administrator’s bad

faith clearly motivated the decision. If, for example, a plaintiff shows that the

insurer provided additional compensation for plan administrators who denied

claims or that the insurer has a history of biased claims, then the plaintiff will

have made an adequate showing of bad faith that would entitle him to attorneys’

fees.4

We find that the legal questions in this case are much closer than the

district court credited, and that the district court therefore abused its discretion

in assessing attorneys’ fees against Hartford. First, we find that there is no

evidence that Hartford acted in bad faith in denying Schexnayder’s claim.

Hartford sought to reconcile conflicting medical evidence by actively

investigating Schexnayder’s claim. Although we find that Hartford’s method of

deciding Schexnayder’s claim was unreasonable, there was substantial evidence

4

These examples are not meant to be exhaustive. They merely illustrate the types of

findings that would lead a district court to hold that the plan administrator acted in bad faith.

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to support its conclusion. Furthermore, there is no direct evidence that the

conflict consciously motivated Hartford’s decision.

Although Hartford has the ability to satisfy an award of attorneys’ fees

(Bowen factor two), and such an award may deter it from allowing its conflict of

interest to factor into its benefits determinations in the future (Bowen factor

three), we find that Bowen factors four and five weigh in favor of Hartford.

Schexnayder has not purported to benefit anyone other than himself by this

litigation or to resolve a significant legal issue. Most importantly, although

Schexnayder has prevailed, both parties demonstrated merit in their claims.

Accordingly, we reverse the district court’s determination that Schexnayder was

entitled to attorneys’ fees.

III. CONCLUSION

We AFFIRM the district court’s holding that Hartford abused its discretion

in its benefits determination, but REVERSE the district court’s award of

attorneys’ fees.

AFFIRMED in part, REVERSED in part.

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