Fleisher v. Standard Insurance

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 11-2490

_____________

ROBERT FLEISHER, D.M.D.,

Appellant

v.

STANDARD INSURANCE COMPANY

___________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil No. 1-10-cv-02678)

District Judge: Honorable Robert B. Kugler

____________

Argued February 6, 2012

Before: SLOVITER, VANASKIE and GARTH, Circuit

Judges

(Filed: May 17, 2012)

Clifford D. Swift, III, Esq. (Argued)

Mark F. Seltzer & Associates

1515 Market Street

Suite 1100

Philadelphia, PA 19102

Counsel for Appellant

Brooks R. Magratten, Esq. (Argued)

Pierce Atwood

10 Weybosset Street

Suite 400

Providence, RI 02903

Byrne J. Decker, Esq.

Pierce Atwood

254 Commercial Street

Merrill's Wharf

Portland, ME 04101

Counsel for Appellee

___________

OPINION OF THE COURT

___________

VANASKIE, Circuit Judge.

Robert Fleisher, D.M.D., filed suit against the

Standard Insurance Company (“Standard”), alleging, inter

alia, a violation of § 502(a)(1)(B) of the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29

U.S.C. § 1132(a)(1)(B). The suit arises out of Standard’s

decision to reduce Fleisher’s monthly long-term disability

(“LTD”) benefits by the amount of the monthly benefits he

2

receives under a separate LTD insurance policy issued to him

by the North American Company for Life and Health

Insurance (“North American”). Fleisher disputes Standard’s

decision that the North American Policy constitutes “group

insurance coverage,” and that the monthly payment he

receives under that Policy is therefore “Deductible Income”

under the Standard Policy. The District Court, applying the

deferential abuse of discretion standard of review, granted

Standard’s motion to dismiss. Specifically, it found that

Standard’s determination to offset the North American

monthly benefit of $1,500 from Standard’s monthly

obligation of $10,000 is supported by substantial evidence

and not unreasonable. Fleisher now appeals this decision.

For the reasons stated herein, we will affirm the decision of

the District Court.

I.

During the course of his career as a dentist, Fleisher

obtained LTD insurance coverage under two separate

policies. In July 1979, Fleisher obtained coverage under a

policy issued by North American (“North American Policy”)

to the American Association of Endodontics (“AAE”), of

which Fleisher is a member. The North American Policy

provides for LTD benefits of $1,500 per month.

In August 2002, Fleisher became eligible for LTD

insurance coverage under a group policy issued by Standard

(“Standard Policy”) to his employer, Endodontics, Ltd., P.C.

(“Endodontics”). The LTD coverage offered by Fleisher’s

employer is an employee benefit governed by ERISA. See

Shaw v. Delta Air Lines, 463 U.S. 85, 91 n. 5 (1983) (“An

‘employee welfare benefit plan’ [governed by ERISA]

includes any program that provides benefits for contingencies

3

such as illness, accident, disability, death, or

unemployment.”). The Standard Policy provides for monthly

LTD benefits equal to a percentage of the plan participant’s

pre-disability earnings, which in Fleisher’s case was a

maximum of “$10,000 before reduction by Deductible

Income.” (A. 61.) The Policy defines “Deductible Income”

to include “[a]ny amount you [a plan participant] receive or

are eligible to receive because of your disability under

another group insurance coverage.” (A. 72) (emphasis

added). The Standard Policy excludes from “Deductible

Income” benefits paid under “any individual disability

insurance policy.” (A. 72.) The Policy does not define either

“another group insurance coverage” or “individual disability

insurance policy.”

In January 2008, Fleisher became disabled and

claimed LTD benefits under both

the Standard and the North American policies. Shortly after

Fleisher began collecting under both policies, Standard

reduced his monthly benefits from $10,000 to $8,500 based

on its determination that the North American Policy

constitutes “another group insurance coverage,” and that the

$1,500 in benefits he receives under it is therefore

“Deductible Income.” Fleisher filed an administrative appeal

of Standard’s decision, arguing that the North American

Policy qualifies as an individual disability insurance policy,

and therefore is not subject to deduction. By letter dated July

11, 2008, Standard rejected Fleisher’s appeal and continued

making the deduction.

On May 26, 2010 Fleisher filed a Complaint in the

United States District Court for the District of New Jersey,

asserting individual and class claims for wrongful denial of

4

benefits under ERISA, along with various state law claims.

After Standard moved to dismiss the Complaint, Fleisher filed

an Amended Complaint on September 8, 2010. After

Standard moved to dismiss the Amended Complaint, Fleisher

filed a Second Amended Complaint (“SAC”) on October 1,

2010. 1 The SAC asserts three ERISA claims: breaches of

fiduciary duty (Count I) and contract (Count III), both

pursuant to § 502(a)(3), 29 U.S.C. § 1132(a)(3), and breach of

contract pursuant to § 502(a)(1)(B) (Count II). The SAC

seeks restitution for the deductions previously taken as well

as injunctive relief to govern future deduction decisions.

Standard moved to dismiss the SAC pursuant to Fed.

R. Civ. P. 12(b)(6). On May 2, 2011, the District Court

granted Standard’s motion. The District Court initially

concluded that the benefits offset determination was governed

by “the deferential abuse of discretion standard.” (A. 14.)

Applying that narrow standard of review, the Court held that

Fleisher could not show that Standard’s decision reflected an

unreasonable interpretation or application of the Standard

Policy. The District Court recognized that there was a

conflict of interest arising from the fact that Standard both

paid benefits and made the offset decision, and that such a

conflict had to be considered in deciding whether Standard

had abused its discretion. It concluded, however, that

Standard’s interpretation of pertinent policy provisions was

not so close as to make the conflict of interest a determinative

factor. The Court also dismissed Fleisher’s § 502(a)(3)

claims for breaches of fiduciary duty and contract, concluding

that Standard’s conduct was not improper.

1

Although Fleisher filed the SAC without obtaining

leave of the Court pursuant to Fed. R. Civ. P. 15, the Court

dismissed the SAC on the merits pursuant to Rule 12(b)(6).

5

II.

We have jurisdiction over this appeal pursuant to 28

U.S.C. § 1291. We exercise plenary review over a district

court’s grant of a motion to dismiss pursuant to Rule 12(b)(6).

Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190

(3d Cir. 2009). Accordingly, we must “‘accept all factual

allegations as true, construe the complaint in the light most

favorable to the plaintiff, and determine whether, under any

reasonable reading of the complaint, the plaintiff may be

entitled to relief.’” Fowler v. UPMC Shadyside, 578 F.3d

203, 210 (3d Cir. 2009) (quoting Phillips v. Cnty. of

Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)). To survive a

motion to dismiss, a complaint must contain sufficient factual

allegations, taken as true, to “state a claim to relief that is

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 570 (2007); see also Ashcroft v. Iqbal, 129 S.Ct. 1937,

1949 (2009) (holding that the plausibility pleading standard

articulated in Twombly applies to all civil actions).

III.

Fleisher’s coverage under the Standard Policy, an

employee welfare benefit plan, is governed by ERISA, 29

U.S.C. §§ 1001, et seq. Section 502(a)(1)(B) of ERISA

creates a civil cause of action for a plan participant “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.” To

assert a claim under this provision, a plan participant must

demonstrate that “he or she . . . ha[s] a right to benefits that is

legally enforceable against the plan,” and that the plan

administrator improperly denied those benefits. Hooven v.

Exxon Mobil Corp., 465 F.3d 566, 574 (3d Cir. 2006). The

6

SAC alleges that Standard “breached its obligations under

ERISA to Dr. Fleisher . . . by taking a deduction to which it

was not entitled and thus unreasonably failing to pay those

benefits in full.” (A. 140-41.)

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101, 115 (1989), the Supreme Court held:

[A] denial of benefits challenged under [§

502(a)(1)(B)] is to be reviewed under a de novo

standard unless the benefit plan gives the

administrator or fiduciary discretionary

authority to determine eligibility for benefits or

to construe the terms of the plan.

When a plan grants its administrator such discretionary

authority, “[t]rust principles make a deferential standard of

review appropriate,” id. at 111, and “we review a denial of

benefits under an ‘arbitrary and capricious’ standard.”

Orvosh v. Program of Group Ins. for Salaried Emps. of

Volkswagen of Am., Inc., 222 F.3d 123, 129 (3d Cir. 2000). 2

Likewise, when an administrator acts pursuant to her

authority “to construe the terms of the plan,” Critzer v. CBS,

Inc., 275 F.3d 291, 295 (3d Cir. 2002) or “to act as a finder of

facts,” Mitchell v. Eastman Kodak Co., 113 F.3d 433, 438 (3d

2

We have clarified that “[i]n the ERISA context, the

arbitrary and capricious and abuse of discretion standards of

review are essentially identical.” Miller v. Am. Airlines, Inc.,

632 F.3d 837, 845 n.2 (3d Cir. 2011) (citing Howley v.

Mellon Fin. Corp., 625 F.3d 788, 793 n.6 (3d Cir. 2010)).

Accordingly, we use the phrases “abuse of discretion” and

“arbitrary and capricious” interchangeably when referring to

the deferential standard of review applicable in this case.

7

Cir. 1997), abrogated on other grounds as recognized by

Miller v. Am. Airlines, Inc., 632 F.3d 837, 847 (3d Cir. 2011),

we also apply the arbitrary and capricious standard when

reviewing those interpretations and factual findings.

“An administrator’s decision is arbitrary and

capricious ‘if it is without reason, unsupported by substantial

evidence or erroneous as a matter of law.’” Miller, 632 F.3d

at 845 (quoting Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d

40, 45 (3d Cir. 1993)) (internal quotation marks omitted). An

administrator’s interpretation is not arbitrary if it is

“reasonably consistent with unambiguous plan language.”

Bill Gray Enters. v. Gourley, 248 F.3d 206, 218 (3d Cir.

2001). When a plan’s language is ambiguous and the

administrator is authorized to interpret it, courts “must defer

to this interpretation unless it is arbitrary or capricious.”

McElroy v. SmithKline Beecham Health & Welfare Benefits

Trust Plan, 340 F.3d 139, 143 (3d Cir. 2003). “The

determination of whether a term is ambiguous is a question of

law. A term is ambiguous if it is subject to reasonable

alternative interpretations.” Taylor v. Cont’l Group Change

in Control Severance Pay Plan, 933 F.2d 1227, 1233 (3d Cir.

1991) (citations omitted).

Courts defer to an administrator’s findings of facts

when they are supported by “substantial evidence,” which we

have “defined as such relevant evidence as a reasonable mind

might accept as adequate to support a conclusion.” Soubik v.

Dir., Office of Workers’ Comp. Programs, 366 F.3d 226, 233

(3d Cir. 2004). When reviewing an administrator’s factual

determinations, we consider only the “evidence that was

before the administrator when he made the decision being

reviewed.” Mitchell, 113 F.3d at 440. The Standard Policy

8

vests the administrator with: “[F]ull and exclusive authority

to control and manage the Group Policy, to administer claims,

and to interpret the Group Policy and resolve any questions

arising in the administration, interpretation, and application of

the Group Policy.” (A. 79.) This language clearly triggers

application of the deferential abuse of discretion standard of

review. See Abnathya, 2 F.3d at 45, abrogated on other

grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 112

(2008).

In the District Court, Fleisher argued that Standard’s

decision is not entitled to arbitrary and capricious review,

asserting that this deferential standard only applies to an

administrator’s interpretation of documents that are part of

the plan itself. Because Standard’s deduction decision was

based in part on its finding that the North American Policy—

a non-plan document—constituted “group insurance

coverage,” Fleisher reasoned that de novo review is

appropriate.

We rejected a similar argument in Mitchell, in which a

plan administrator denied Mitchell’s claim for benefits based

on a factual finding about his eligibility, rather than on an

interpretation of the terms of the plan. 113 F.3d at 438. The

plan vested the administrator with “full discretionary

authority to determine all questions arising in the

administration, interpretation and application of the plan.” Id.

We held that this “broad grant of discretionary authority to

the Administrator” to apply the plan “must encompass the

resolution of factual disputes,” because such “fact-based

determinations of eligibility for LTD benefits are certainly

one of the ‘questions arising in the administration,

interpretation and application of the plan.’” Id. at 438-39.

9

The District Court relied on our reasoning in Mitchell

in rejecting Fleisher’s argument for de novo review. The

Court found that the Standard Policy grants the administrator

discretionary authority over “application” of the Policy,

which includes the authority to “interpret the plan and make

findings of fact necessary to determine eligibility.” (A. 14.)

Accordingly, the Court reviewed Standard’s deduction

decision—including its “interpretation and characterization of

the North American Policy”—under the arbitrary and

capricious standard.

Fleisher apparently reasserts his challenges to this

deferential standard now, declaring: “On appeal, this Court

reviews the plan administrator’s denial of benefits by

applying the standard of review the district court should have

used initially.” (Appellant Br. at 12, citing Mitchell, 113 F.3d

at 437; Dewitt v. Penn-Del Directory Corp., 106 F.3d 514,

519 n.4 (3d Cir. 1997)). Fleisher, however, offers no further

argument to support this apparent challenge, and we discern

no error with the District Court’s determination that the

arbitrary and capricious standard of review applies here. We

will therefore apply the arbitrary and capricious standard of

review to Standard’s denial of benefits, including its

determination about the North American Policy. 3

3

As our dissenting colleague observes, the conflict of

interest inherent in the fact that Standard both pays and

decides what should be paid is a factor to be considered in

applying the abuse of discretion standard of review. It is not,

however, inherently a determinative factor. See Glenn, 554

U.S. at 117-19. Indeed, “the existence of a conflict,” such as

the one in this case, “[does] not change the standard of review

from abuse of discretion to a more searching review.”

10

IV.

The Standard Policy permits it to reduce Fleisher’s

monthly LTD benefits by any amount paid or payable under

“another group insurance coverage.” At issue here is the

meaning of “group insurance” and whether Standard

reasonably determined that the North American Policy falls

within the meaning of this term. In this regard, Standard’s

determination involved both an interpretation of “group

insurance” and a factual determination about the North

American Policy.

The District Court recognized, and the parties do not

dispute, that the term “group insurance” is ambiguous. The

Court consulted various insurance law treatises and found that

insurers use the term “group insurance” to refer to “at least

two subsets of collective insurance products,” including “true

group insurance” and “franchise insurance.” (A. 17.) The

Court explained a basic difference between the two:

Group insurance is an arrangement by which a

single insurance policy is issued to a central

Doroshow v. Hartford Life & Acc. Ins. Co., 574 F.3d 230,

234 (3d Cir. 2009). Instead, we are to “apply a deferential

abuse of discretion standard of review across the board and

consider any conflict of interest as one of several factors in

considering whether the administrator or the fiduciary abused

its discretion.” Est. of Schwing v. Lilly Health Plan, 562 F.3d

522, 525 (3d Cir. 2009). While our dissenting colleague

expounds at great length on the significance of the conflict of

interest in this case, Fleisher does not even mention this factor

in his briefs on appeal, let alone explain how it affects the

analysis of his claim.

11

entity—commonly an employer, association, or

union—for coverage of the individual members

of the group. Franchise insurance is a variation

on group insurance, in which all members of the

group receive individual policies.

(A. 17, quoting Couch on Insurance § 1:29 (3d ed. 2002)).

The District Court also identified other distinguishing

features of the two types of group policies. Under true group

insurance policies, the certificate holder is typically an

employee of the master policy holder, “all members or

employees are automatically enrolled,” and the master policy

holder works directly with the insurer and is responsible for

paying premiums, notifying the insurer about changes

concerning which persons are covered at a given time, and

submitting members’ claims. (A. 17, citing Appleman on

Insurance Law & Practice §§ 41, 54 (rev. ed. 1981)

(“Appleman”)).

Franchise insurance is also issued through a group

which holds the master policy that provides for the general

terms. While the master policy holder and insurer “‘may

negotiate’ with the insurer to modify or terminate the plan, in

all other respects the relationship between members and the

insurer is ‘precisely that of an insurer dealing directly with its

policyholders.’” (A. 18, quoting Appleman § 54.) As the

District Court explained:

[F]ranchise insurance generally has the

following characteristics: (1) members of the

relevant association or entity may enroll in the

plan but are not required to do so; (2) members

pay premiums directly to the insurer; (3)

12

members make claims directly to the insurer;

and (4) insurers agree to “waive underwriting,

and take all applicants across the board.”

(A. 18, quoting Appleman § 54.)

Therefore, “[a]lthough true group insurance and

franchise insurance are distinct products,” the District Court

found that, “‘lawyers, legal writers, publishers, and the courts

can refer to them individually and collectively as “group

insurance.”’” (A. 18, citing Holmes’ Appleman on Insurance

§ 2.5 (2d ed. 2002)). On this basis, the Court concluded that

the term “group insurance” is ambiguous because it “may

reasonably refer to at least two different types of collective

insurance products.” (A. 19.)

Our dissenting colleague, relying upon “general

principles of contract law,” (Dissenting Op. at 4), suggests

that we should apply the well-established principle that

ambiguous terms in an insurance policy “must be construed

most strongly against the insurance company that drafted it.”

(Id. at 3). He vigorously asserts that our review must be

“informed both by [such] general principles of contract law

and by ERISA’s purposes as manifested in its specific

provisions.” (Id. at 4, quoting Burstein v. Retirement Account

Plan for Emp. Of Allegheny Health Educ. & Research

Found., 334 F.3d 365, 385 (3d Cir. 2003) (emphasis added by

Judge Garth) (internal quotation marks and citations

omitted)). The dissent argues that the result here is

inequitable because “the Standard Policy to which Dr.

Fleisher subscribed at no time alerted him to its deductible

provisions, nor did Standard offer an interpretation of those

13

provisions so that a layperson such as Dr. Fleisher could

assess the protection that he was seeking.” 4 (Id. at 3-4.)

With all due respect to our dissenting colleague, we

think that he misapprehends the nature of the abuse of

discretion standard of review. Notably, the case he cites for

applying general principles of contract law to interpret

ERISA plan terms, Burstein, 334 F.3d 365, did not involve

review of a benefits determination under an abuse of

discretion standard, but instead concerned a conflict between

a summary plan description and the plan document itself.

And while we have applied the doctrine of contra

proferentem in the context of ERISA claims, we have done so

only to decide whether the plan documents confer

discretionary authority on the plan administrator so as to

trigger deferential review, a decision we make under a

plenary standard of review. See, e.g., Heasley v. Belden &

Blake Corp., 2 F.3d 1249, 1254, 1257-58 (3d Cir. 1993).

Where, however, the abuse of discretion standard applies, we

have made clear that we must defer to the plan

administrator’s interpretation of ambiguous plan terms unless

that interpretation is arbitrary or capricious. See McElroy 340

F.3d at 143 (“Because the language of the . . . Plan is

equivocal, the plan administrator was authorized to interpret

it, and we must defer to this interpretation unless it is

arbitrary or capricious.”).

4

It bears mentioning that the record before this Court

does not include an actual insurance policy, but does include

the ERISA Summary Plan Description (“SPD”) for the

disability coverage provided by Standard. The dissent is

correct that the SPD does not describe its deductible

provisions in large block lettering or in any other way that

would call a reader’s attention to this specific provision.

14

The dissent’s application of the contra proferentem

doctrine would supplant deference to an administrator’s

reasonable interpretations of ambiguous terms with a

presumption that such an interpretation is unreasonable. In

addition to undermining the established deferential standard,

contrary to Supreme Court authority, such an approach also

eviscerates the provision of the Standard Policy which

granted the administrator discretion in the first place. Indeed,

the administrator can hardly be said to exercise discretion if

her interpretations of the policy’s terms is burdened by a

presumption against the insurer.

Notably, every Court of Appeals to have addressed the

issue has concluded that a court reviewing a benefits decision

for abuse of discretion cannot apply the principle that

ambiguous plan terms are construed against the party that

drafted the plan. See, e.g., D & H Therapy Assoc., LLC v.

Boston Mut. Life Ins. Co., 640 F.3d 27, 35 (1st Cir. 2011)

(“We have emphasized that our review of whether a plan

administrator abused its discretion does not require that we

determine either the ‘best reading’ of the ERISA plan or how

we would read the plan de novo. We have also noted that the

doctrine of contra proferentem does not apply to review of an

ERISA plan construction advanced by an administrator given

authority to construe the plan.”) (citations omitted); Marrs v.

Motorola, Inc., 577 F.3d 783, 787 (7th Cir. 2009)

(“[A]lthough, generally, ambiguities in an insurance policy

are construed in favor of an insured, in the ERISA context in

which a plan administrator has been empowered to interpret

the terms of the plan, this rule does not obtain.”) (citation and

quotation marks omitted); Carden v. Aetna Life Ins. Co., 559

F.3d 256, 260-61 (4th Cir. 2009); White v. Coca-Cola Co.,

542 F.3d 848, 857 (11th Cir. 2008); Lennon v. Metro. Life

15

Ins. Co., 504 F.3d 617, 627 n.2 (6th Cir. 2007); Kimber v.

Thiokol Corp., 196 F.3d 1092, 1100-01 (10th Cir. 1999);

Winters v. Costco Wholesale Corp., 49 F.3d 550, 554 (9th

Cir. 1995); Pagan v. NYNEX Pension Plan, 52 F.3d 438, 443-

44 (2d Cir. 1995) (“[A]pplication of the rule of contra

proferentum is limited to those occasions in which this Court

reviews an ERISA plan de novo.”). District Courts in our

Circuit also have recognized that the doctrine of contra

proferentem does not apply where, as here, judicial review is

constrained by the abuse of discretion standard. See, e.g.,

Brown v. First Reliance Standard Life Ins. Co., 2011 WL

1044664, at *16, n.13 (W.D. Pa. 2011); Doe v. Hartford Life

& Accident Ins. Co., 2008 WL 5400984, at *4 (D. N.J. 2008).

The dissenting opinion reads as if we were interpreting

an ambiguous term in an insurance policy under a de novo

standard of review. It alludes to notions of contracts of

adhesion and reasonable expectations of the insured that

populate cases interpreting insurance policies in the first

instance. Those concepts are simply not applicable where, as

here, the ERISA plan document makes the plan administrator

the competent authority to interpret ambiguous plan

provisions in the first instance. See Kimber, 196 F.3d at 1101

(“[T]he reasonable expectation doctrine is inapplicable to the

review of an ERISA disability benefits plan under the

arbitrary and capricious standard.”). As Judge Cudahy

explained in Morton v. Smith, 91 F.3d 867, 871 n.1 (7th Cir.

1996):

Courts invoke [the contra proferentem] rule

when they have the authority to construe the

terms of a plan, but this authority arises only

when the administrators of the plan lack the

16

discretion to construe it themselves. . . . When

the administrators of a plan have discretionary

authority to construe the plan, they have the

discretion to determine the intended meaning of

the plan’s terms. In making a deferential review

of such determinations, courts have no occasion

to employ the rule of contra proferentem.

Deferential review does not involve a

construction of the terms of the plan; it involves

a more abstract inquiry—the construction of

someone else's construction.

(internal citations omitted.)

Ultimately, we think Judge Garth is mistaken

inasmuch as he implies that Fleisher has somehow been the

victim of a contract of adhesion, or that he was otherwise

misled by Standard. Although the Standard Policy did not

define the terms “group insurance” or “individual insurance”

or reference the term “franchise insurance,” it reposed in the

administrator the authority to interpret ambiguous terms.

Thus, we are not concerned that plan participants like

Fleisher—or, as Judge Garth suggests, sophisticated plan

participants like the judges on this panel—are misled by

insurance policies such as Standard’s. Since the Standard

Policy vested the administrator with discretion to interpret the

Policy, under our well-established case law we have no

option but to uphold this interpretation unless it is arbitrary or

capricious. As our dissenting colleague observed in another

ERISA case, “a court must actually apply the correct standard

[of review]; mere lipservice and mere citation to a standard of

review will not suffice.” Lasser v. Reliance Standard Life

Ins. Co., 344 F.3d 381, 399 (3d Cir. 2003) (Garth, J.,

17

dissenting). In this case, application of the deferential

standard of review precludes reliance upon the general

principles of contract law on which the dissent rests. Whether

we would reach a different interpretation under de novo

review is therefore irrelevant.

Having established that “group insurance” is

ambiguous and that the Standard administrator is authorized

to interpret it, the District Court evaluated the features of the

North American Policy to determine whether Standard could

reasonably interpret it as a type of group insurance coverage.

The Court observed several features of the North American

Policy consistent with franchise insurance, including that the

Policy was “issued through a group, [the AAE], whose

members could individually apply for coverage,” and that

“the members otherwise interacted directly with the North

American regarding coverage and premiums.” (A. 19.) The

Court also noted that “the Certificate, which [Fleisher]

attaches to the Complaint, clearly states that it is issued

pursuant and subject to ‘group policy PG A320,’ which is

held by AAE, and that [Fleisher] obtained the Certificate as a

member of the AAE.” (A. 19.) The Court acknowledged

Fleisher’s argument that the Policy “bears certain features

characteristic of individual insurance policies,” but concluded

that the Policy can nonetheless be “reasonably characterized

as a franchise policy.” (A. 19). On this basis, the Court

dismissed Fleisher’s § 502(a)(1)(B) claim.

Fleisher challenges this conclusion on appeal, urging

that Standard’s determination is unreasonable because it is

based on a factual finding—that the North American Policy is

franchise insurance—that is not supported by the evidence.

Instead, Fleisher contends that the evidence supports the

18

conclusion that the Policy “is an individual disability

insurance policy with all the characteristics of an individual

disability insurance policy and none of the characteristics of a

group insurance policy.” (Appellant Br. at 21.)

First, Fleisher notes that unlike franchise insurance,

where “insurers agree to ‘waive underwriting, and take all

applicants across the board,’” (A. 18), the North American

Policy “was subject to individual underwriting.” (Appellant

Br. at 19.) In this respect, he cites portions of the SAC that

allege that he was “required to complete a medical

questionnaire as part of his application” for the North

American Policy, and that the application “itself indicates that

North American ordered a Retail Credit Report,” and stated

that the underwriting procedure may entail “an investigative

consumer report.” (Id. at 19-20.)

The District Court did not suggest—nor do any of the

treatises it cited indicate—that waiver of underwriting is a

sine qua non of franchise insurance. Rather, the Court listed

waiver of underwriting as one of four characteristics that

franchise insurance “generally has.” (A. 18.) Moreover, the

relevant inquiry is whether Standard’s interpretation is

supported by “substantial evidence,” which does not require

that the evidence uniformly supports its conclusion, but

merely requires “such relevant evidence as a reasonable mind

might accept as adequate to support a conclusion.” Soubik,

366 F.3d at 233. The District Court correctly found that

Standard’s interpretation is supported by substantial evidence,

including that the North American Policy possesses the other

general features of franchise insurance, that it was issued to

Fleisher through his membership in a group, and that it states

that it is a “group policy.” Thus, the fact that the North

19

American Policy lacks one feature of franchise insurance

does not outweigh the other evidence in support of Standard’s

interpretation.

Fleisher next argues that the evidence supports a

finding that the North American Policy is an individual

disability insurance policy, and therefore excluded from the

definition of “Deductible Income” under Standard’s Policy.

In this regard, Fleisher enumerates six features of the North

American Policy that, he claims, it shares in common with

individual policies, including: (1) it is individually

underwritten; (2) members pay premiums directly; (3)

members enroll directly; (4) members submit claims directly;

(5) members receive individual billing statements; and (6) it

is non-cancellable and guaranteed renewable.

The fact that the Policy shares features in common

with individual disability insurance policies is not necessarily

inconsistent with a finding that the Policy is franchise

insurance. Indeed, three facets of the Policy that Fleisher

cites as evidence of an individual policy—direct payment of

premiums, direct enrollment, and direct submission of

claims—are among those that the District Court identified as

characteristics of franchise insurance. Thus, Fleisher’s

argument that the Policy has “none of the characteristics of a

group insurance policy” is plainly untrue, as these three

features in fact support the conclusion that the Policy is

franchise insurance, which itself is a type of group insurance. 5

5

To the extent that Fleisher attempts to demonstrate

that the Policy is not “true” group insurance, this argument is

unavailing. Fleisher has conceded that the term “group

insurance” is ambiguous, and that “franchise insurance” is a

20

Moreover, as the District Court aptly observed, even

accepting that the Policy possesses some features of

individual policies, it “is certainly not a pure individual policy

because it plainly states that it was issued pursuant to a group

policy held by AAE.” (A. 16-17.) Indeed, there are several

features of individual policies that the North American Policy

does not possess. Notably, unlike individual policies,

Fleisher has only a certificate of coverage, which is expressly

subject to the terms of the group policy and to termination of

the group policy, as well as numerous other conditions

determined by the holder of the group policy. (Appellee Br.

at 12-13.)

Finally, Fleisher argues that the District Court

“ignored the most compelling evidence that the North

American Policy is an individual rather than a group policy,

Reassure America’s own characterization of the policy it sold

to Dr. Fleisher.” (Appellant Br. at 22.) The SAC alleges that

in his administrative appeal of the deduction decision,

Fleisher submitted a letter from Ken Selasky, the Assistant

Vice President at Reassure America, which administers the

North American Policy. Selasky’s letter states: “[E]ven

though this policy was issued through this group [referring to

AAE], it is an individual income policy and we are treating

all aspects of Dr. Fleisher’s claim as an individual disability

income policy.” (Appellant Br. at 22.)

While the opinion of the administrator of the North

American Policy as to the nature of the policy is not

type of “group insurance.” Therefore, the relevant inquiry is

whether there is substantial evidence that the Policy is

franchise insurance. The question whether it is “true” group

insurance is irrelevant.

21

immaterial, we do not consider it sufficiently persuasive to

establish that Standard’s contrary interpretation was

unreasonable. Indeed, under the arbitrary and capricious

standard of review, the relevant inquiry is not whether it is

reasonable to interpret the North American Policy as an

individual insurance policy, but whether it is unreasonable to

interpret it as group insurance. We conclude that this

determination is not unreasonable: the North American Policy

exhibits several characteristic features of franchise insurance,

which is a species of group insurance, and Fleisher’s

arguments to the contrary do not undermine the sufficiency of

this evidence. 6

6

As noted above, the dissent makes much of a point

not argued by Fleisher in his principal brief or in his reply

brief: the conflict of interest arising from the fact that

Standard benefits from its decision to set off the North

American payment of $1,500 per month from the Standard’s

monthly obligation of $10,000. The type of conflict here is

not uncommon. See Marrs, 577 F.3d at 789 (“[A] conflict of

interest . . . is a given in almost all ERISA claims”.). We

have recognized that a conflict may be determinative where

the issue is close. See Est. of Schwing, 562 F.3d at 526. We

agree with the District Court’s conclusion that the issue in

this case is not so close as to make the conflict a tiebreaking

factor. Franchise insurance is a species of group insurance,

Fleisher procured coverage through a group, the coverage he

obtained had a number of features of franchise insurance, and

he received only a certificate of insurance, not a policy. It

plainly was not unreasonable to consider the North American

Policy group insurance, and the conflict of interest does not

alter this conclusion.

22

V.

For the foregoing reasons, we will affirm the District

Court’s decision dismissing this action.

23

Fleisher v. Standard Insurance Co.

No. 11-2490

GARTH, Circuit Judge, dissenting.

While I have no quarrel with the majority’s statutory analyses, I reach a different

result and, therefore, respectfully dissent.

I have looked beneath the surface of the principles upon which the majority rely,

to the fair and equitable roots of this controversy with Standard. As a result, I would

remand this case to the District Court to explore and determine the equitable factors in

play, as well as the conflict and ambiguities that have resulted in a complete frustration of

Dr. Fleisher’s objectives and expectations.

Dr. Fleisher, a dentist specializing in endodontistry, in an effort to protect his

future earning capacity, subscribed to a North American Disability Policy in 1979. He

was to receive a benefit of $1,500 a month. At that time, he was not disabled, but he was

aware of the possibility that he might be in future years. Accordingly, when he became

eligible for a group policy, he subscribed to one written by the Standard Insurance

Company. This was some 23 years after he had subscribed to his initial disability policy

with North American. His later subscription to the Standard policy was obviously to

protect and augment his financial livelihood, by insuring that he had increased protection

in the event he became disabled.

In January 2008, he became disabled and claimed the benefits under both policies,

Standard, for the first time, informed him that he could not receive the $10,000 a month

which was the amount of the policy which he had taken out. Why? Because the 1979

1

policy to which he had originally subscribed was, in Standard’s opinion, a “group policy”

and, as such, the amount of the benefits which Dr. Fleisher could receive from the

Standard policy was reduced by the amount of the North American policy benefit that he

would henceforth receive.

Accordingly, at this time, Dr. Fleisher, who is no longer eligible for disability

benefits from any company and can no longer subscribe for disability protection, is

remitted to $10,000 a month, rather than $11,500 a month, the sum total of both policies

which he had taken out.

Why should this be, when the Standard policy at no time brought to Dr. Fleisher’s

attention the deductibility provision of the Standard policy, nor did it acquaint him with

any definitions of the terms: “group policy”, “ individual policy”, or “franchise

policies”?

All members of the majority and I (as well as the District Court judge) agree that

the terms and language of the Standard Insurance policy are ambiguous. Nowhere in the

Standard policy are the terms “group insurance” and “individual insurance” defined. No

matter how diligently one may look at or study the Standard policy, there is no guidance

to help the policyholder determine the characteristics of either type of policy or how these

characteristics would affect the benefits that Dr. Fleisher expected to receive.

Moreover, although the District Court and the majority here have focused their

analysis on “franchise policies,” and have detailed the characteristics of a “franchise

policy,” neither the Standard policy nor the individual policy that Dr. Fleisher originally

purchased, even mention, much less define, the term “franchise policy.” Yet the

2

characteristics and definition of a “franchise policy” dominate and control the holding of

both the District Court opinion and the majority opinion here.

“Franchise policies” were never described in any insurance document that Dr.

Fleisher had received, but are rather a matter of characterization that can be found only in

an insurance treatise such as Appleman’s.

As to the characterization of the individual and group policies, there was no

warning or alert given to Dr. Fleisher which could send up a red flag warning that he

should not purchase the Standard policy with its deductible provisions or that if he did, he

would not achieve the disability benefits that he sought to receive. (See footnote 1,

supra.) In other contexts, our society has taken great pains to alert consumers of products

detrimental to their well-being: warnings appear in large letters in the advertisements and

on the packaging of tobacco, drugs, and alcohol. Large block lettering or other emphatic

warnings on the Standard policy might have alerted Dr. Fleisher to the problem that he

now faces.

It is well established that when the language of an insurance policy is ambiguous,

that language must be construed most strongly against the insurance company that

drafted it. American Legacy Foundation, R.P. v. National Union Fire Ins. Co., 623 F.3d

135, 139 (3d Cir. 2010) (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins.

Co., 616 A.2d 1192, 1195-96 (Del. 1992)).

In the present case, the Standard policy to which Dr. Fleisher subscribed at no time

alerted him to its deductible provisions, nor did Standard offer an interpretation of those

provisions so that a layperson such as Dr. Fleisher could assess the protection that he was

3

seeking. Further, as I have emphasized, the Standard policy makes no mention of the

status or even the nature of a “franchise policy,” a characterization which governs the

District Court’s and the majority decisions.

The mere fact that this case implicates ERISA does not mean that these basic

fundamental contract principles should be ignored. “In interpreting plan terms for

purposes of claims under § 1132(a)(1)(B), we apply a federal common law of contract,

informed both by general principles of contract law and by ERISA's purposes as

manifested in its specific provisions.” Burstein v. Retirement Account Plan for

Employees of Allegheny Health Education and Research Foundation, 334 F.3d 365, 381

(3d Cir. 2003) (Emphasis added, internal quotation marks omitted, internal citations

omitted).

Although there is no direct precedent that confirms ERISA must be considered in

light of equitable realities, there are countless instances in which equity has been

predominant in ERISA’s concerns. See, e.g., Skretvedt v. E.I. DuPont De Nemours, 372

F.3s 193, 196 (3d Cir. 2004) (prejudgment interest on an ERISA award is governed in

certain circumstances not by “a rigid theory of compensation for money withheld, but is

given in response to considerations of fairness. It is denied when its exaction would be

inequitable.”) (Quoting Board of Commissioners of Jackson County, Kansas v. United

States, 308 U.S. 343, 352, (1939)). (Italics added.)

Dr. Fleisher’s situation is particularly problematic in light of the conflict under

which the Standard administrator labors. The conflict that Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101 (1989) and Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105

4

(2008) have recognized where the benefit-giver and the administrator of the benefit are

the same, is clearly patent on this appeal. Standard profits by the deduction of $1500 per

month from Dr. Fleisher’s benefits. It does so by relying wholly upon an extraneous

statement in the North American policy, which reads “[h]aving issued group policy

PGA320, hereinafter called ‘policy.’”

Standard, the District Court, and the majority here discredit North American’s

own characterization of its own [North American] policy. North American’s Assistant

Vice President, Mr. Ken Selasky has clearly written and explained that “even though this

[North American] policy was issued through this group [AAE], it is an individual income

policy and we are treating all aspects of Dr. Fleisher’s claim as an individual disability

income policy.” (Emphasis added).

The District Court and the majority completely overlook the nature of the North

American policy, to wit, that it was individually underwritten, non-cancellable,

guaranteed renewable, that Dr. Fleisher paid his premiums and made claims directly to

North American, that he enrolled for coverage directly with North American, and that he

received an individual billing statement. These are not traditional group policy

characteristics. These are the basic characteristics of an individual policy.

Our Supreme Court has said that it is “more important (perhaps of great

importance) where the circumstances suggest a higher likelihood that it affects the

benefits decision . . . to take steps to reduce potential bias and to promote accuracy.”

Glenn, supra 554 U.S. at 117. In other words, to properly consider the impact of conflict

5

of interest in determining the reasonableness of an administrator’s decision, a reviewing

court must consider the closeness of the case and the severity of the conflict of interest.

The District Court, in dismissing Dr. Fleisher’s complaint, did not undertake any

factfinding or substantial discussion related to the administrator’s conflict of interest or

its severity. Although the District Court acknowledged that a conflict of interest did in

fact exist, the order dismissing Fleisher’s complaint summarily concluded that “this is not

so close a case that any conflict of interest would break the tie and tip the scales in favor

of the plaintiff.” Although my colleagues in the majority agree with the District Court, I

cannot. This case goes beyond the point of being close, to the point of the administrator’s

decision being incorrect--if ever there were a situation where the administrator’s conflict

of interest must properly be considered as a factor, this is it!

Indeed, it should be remembered that the District Court dismissed Dr. Fleisher’s

complaint pursuant to F.R.A.P. Section 12(b)(6). Such a dismissal requires that a Court

accept the allegation of the complaint as true, and that it construe the complaint in the

light most favorable to the plaintiff.

Dismissal with prejudice is a drastic sanction termed “extreme” by the Supreme

Court in National Hockey League v. Met. Hockey Club. 427 U.S. 639, 643 (1976), yet,

here, the District Court did not only dismiss Dr. Fleisher’s complaint, with prejudice, but

in doing so, it dealt with the merits of his action.

If the hallmark of the District Court’s “arbitrary and capricious standard of

review” is reasonableness, and if the relevant inquiry, as the majority of this Court states,

“….is not whether it is reasonable to interpret the North America policy as an individual

6

policy, but whether it is unreasonable to interpret it as group insurance,” Maj. Op. at 20,

then I suggest that we should look to other measures of dismissal for a balancing of what

is or is not reasonable.

In Poulis v. State Farm Fire and Casualty Company, 747 F.2d 863 (3d Cir. 1984),

this Court, by Judge Sloviter, prescribed a test consisting of six (6) factors by which a

dismissal with prejudice should be balanced and analyzed. 1 True, the Poulis case

involved a sanction and did not arise under the ERISA statute, but it is instructive to

recognize the length to which we have gone in preserving cases for a merits

determination rather than dismissing them on a mere reading of the complaint.

While the context of Poulis differs from Dr. Fleisher’s claims, it is quite evident

that prejudice is one of the most significant factors in determining the appropriateness of

dismissal. And what could be more prejudicial or conflict-ridden than the actions of

Standard in decreasing Dr. Fleisher’s benefits by $1500 a month while it continues to

receive premiums based on $10,000 in coverage?

I see no reason why the same sort of analysis should not be employed in an ERISA

context where the reasonableness of a dismissal is at issue. A balancing of prejudice and

1

In Poulis v. State Farm Fire and Casualty Company, 747 F.2d 863, 868 (3d Cir. 1984),

we required the District Court to assess:

1. The extent of the parties responsibility;

2. prejudice to the adversary;

3. a history of dilatoriness;

4. whether the attorney’s conduct was willful or in bad faith;

5. alternative sanctions; and

6. the meritoriousness of the claim,

cautioning that dismissal must be a last resort.

7

a balancing of the factors that result in a dismissal would only improve the analysis of a

Section 12(b)(6) dismissal under ERISA.

The majority has held that the District Court was not unreasonable to interpret the

North America policy as a group insurance policy. I, of course, disagree using the same

loadstar of reasonableness as did the majority.

While I am loathe to discount all of the analyses found in the majority opinion, I

cannot accept the fact that fair and equitable means should be so thoroughly disregarded

in favor of fitting a legal square peg into a legal round hole. To me, the majority has

resolved Dr. Fleisher’s problem by merely seeking out some the legal principles which

would support its conclusion without regard to the fundamental precepts of equity,

fairness and justice 2. A major consideration on this appeal should include judicial insight

to the nature of the problem, the nature of the conflict which the administrator of an

ERISA plan must analyze, the nature of the ramifications that may ensue from this

Court’s decision, and the nature of the actions that a litigant can take to protect a

particularly vital interest.

When I assemble these various concerns and concepts in this case, I realize that

this entire area of equitable concern has not been addressed in any fashion by the

majority. I conclude that we should redeem this failing by remanding this appeal to the

District Court for consideration of the various factors and particularly the equitable and

fairness elements to which I have adverted.

2

The goal to which we as judges are all wedded, in addition to the oath which we take, is

found in Deuteronomy 16:20, “Justice, justice shalt thou pursue.”

8

I, therefore, respectfully dissent.

9