Patrick v. Reliance Standard Life Insurance Company
Filing
47
REPORT AND RECOMMENDATIONS- denying 29 MOTION for Summary Judgment, granting 27 MOTION for Summary Judgment, denying as moot 41 MOTION for Leave to File. Please note that when filing Objections pursuant to Federal Rule of Civil Proced ure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 9/19/2016. Signed by Judge Sherry R. Fallon on 8/31/2016. (lih)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
AMY PATRICK, M.D.,
Plaintiff,
v ..
RELIANCE STANDARD LIFE
INSURANCE COMP ANY
Defendant.
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)
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)
)
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)
)
Civil Action No. 15-169-SLR-SRF
REPORT AND RECOMMENDATION
I.
INTRODUCTION
On February 19, 2015, Amy M .. Patrick, M.D. ("Dr. Patrick"), filed this action against
Reliance Life Insurance Compariy ("Reliance") pursuant to the Employment Retirement Income
Security Act of 1974 ("ERISA") 29 U.S.C. § 1001 et seq. (D.I. 1) Reliance entered into a
·contract with Mid-Atlantic G.I. Consultants
("MAGI~")
to provide Long Term Disability
("LTD") benefits to MAGIC employees (the "Plan"). (D.I. 28 at 2) Dr. Patrick has been
employed by MAGIC as a gastroenterologist since 1996. (D.I. 30 at 2) Dr. Patrick began
. receiving LTD benefits on April 15, 2009. (Id. at' 7-8) Dr. Patrick asserts that Reliance's
subsequent decisions to reduce her LTD benefits were arbitrary and capricious. (Id. at 1-2)
Currently before the court are the parties' cross-motions for summary judgment and
Reliance's motion for leave to file a sur-reply. (D.I. 27; D.I. 29; D.I. 41) For the reasons set
forth below, and as indicated by the chart, infra, I recommend that the court deny Dr. Patrick's
motion for summary judgment, grant Reliance's motion for summary judgment, and deny
Reliance's motion for leave to file a sur-reply as moot.
Plaintiff, Amy Patrick, M.D.
Defendant, Reliance Standard
Life Insurance Co.
Defendant, Reliance Standard
Life Insurance Co.
II.
Motion for Summary
.Judgment (D.I. 29)
Motion for Summary
Judgment (D.I. 27)
Motion for Leave to File SurReply in Opposition to
Plaintiffs Motion for
Summary Judgment (D .I. 41)
Denied
Granted
Denied as Moot
BACKGROUND
A.
Dr. Patrick's Employment at MAGIC and Medical History
Dr. Patrick began working for MAGIC as a gastroenterologist in 1996. (D.I. 30 at 2) On
November 1, 2005, Dr. Patrick entered into a shareholder-physician employment agreement with
MAGIC (the "Employment Agreement"). (Id. at 3) According to the Employment Agreement,
Dr. Patrick's compensation is calculated by subtracting her "~hared expenses" from her "gross
collections." (Id. at 4) The Employment Agreement allows Dr. Patrick to be paid an agreed upon
monthly salary draw if MAGIC and Dr. Patrick reconcile such draw against the amounts actually
due to Dr. Patrick at least quarterly. (Tr. at 1841-42) 1
On January 2, 2007, Dr. Patrick sustained nerve damage while undergoing a surgical
procedure to remove a lymph node from her neck. (D.I. 30 at 2) The nerve damage caused
significant loss of shoulder mobility. (Id.) Although the nerve damage could not be repaired, in
July of 2008, she underwent a re-attachment surgery involving her right shoulder blade. (Id.)
Twenty months after the surgery, Dr. Patrick was still symptomatic. (Id. at 3) Accordingly, her
surgeon determined that she was permanently partially disabled, as she was no longer able to
perform her work as a full-time gastroenterologist. (Id.)
1
All citations to "Tr." refer to the transcript of the Joint Stipulated Administrative Record, which
is electronically docketed under seal at D.I. 20.
2
Dr. Patrick alleges that her disability prevented her from generating sufficient income to
cover her share ofMAGIC's business operating expenses, 2 which she contends she was
obligated to satisfy under the Employment Agreement. (Id. at 2-4) Consequently, by January
2015, Dr. Patrick's "Overall Capital Account" 3 balance was negative $379,909.33. (Id. at 5)
B.
The LTD Plan
Reliance issued the LTD Plan to MAGIC on September 1, 2007. (D.I. 1, Ex. A at 2) The
Plan is governed by ERISA. (Tr. at 1) Under the Plan, Reliance "serve[s] as the claims review
fiduciary with respect to the insurance policy and the Plan." (Id. at 15) As the claims review
fiduciary, Reliance "has the discretionary authority to interpret the Plan and the insurance policy
and to determine eligibility for benefits." (Id.)
The Plan pays a monthly benefit to an employee ifthe insured is either "Totally
Disabled"4 or "Partially Disabled." 5 LTD benefits equate to 60% of pre-disability earnings, at a
maximum amount of $12,000 per month, subject to an offset by "Other Income Benefits." 6 (D.I.
30 at 5) Benefits are paid out of Reliance's own funds, accumulated from plan premiums. (Id. at
13)
The Plan also includes a Rehabilitation Provision, which provides that if an insured
employee is Totally Disabled, but still able to perform work on a limited basis, the employee's
2
The Employment Agreement defines "shared expenses," which are business overhead items.
(Tr. at 1842)
3
"Overall Capital Account" is not defined in the Employment Agreement or the LTD Plan. Dr.
Patrick uses the term in her appeal letters to Reliance without defining it. (Tr. at 982)
4
Under the Plan, an employee is "Totally Disabled" ifhe or she "cannot perform the material
duties of his/her regular occupation." (Tr. at 12)
5
Under the Plan, an employee is "Partially Disabled" if he or she can only perform the material
duties of his or her regular occupation on a part-time basis. (Tr. at 12)
6
The Plan defines "Other Income Benefits" to include income from a broad range of sources
such as other group insurance plans, benefits under workers compensations laws, and retirement
benefits. (Tr. at 19)
3
LTD benefits are reduced by 50% of earnings received through such employment. 7 (Id. at 6-7)
The Rehabilitation Provision states:
"Rehabilitative Employment" means work in any gainful occupation for which
·the insured's training, education or experience will reasonably allow. The work
must be supervised by a Physician or a licensed or certified rehabilitation
specialist approved by us. Rehabilitative Employment includes work performed ·
while Partially Disabled, but does not include performing all the material duties of
his/her Regular Occupation on a full-time basis.
If an insured is receiving a Monthly benefitbecause he/she is considered Totally
Disabled under the terms of this Policy and is able to perform Rehabilitative
Employment, we will continue to pay the Monthly Benefit less an amount equal
to 50% of earnings received through such Rehabilitative Employment.
(Tr. at 33) The Plan does not define the terms "earnings" or "earnings received." However,
Reliance does define "Covered Monthly Earnings" as the insured's monthly salary received on
the first of the policy month just prior to the date of total disability. (Id. at 11) "Covered
Monthly Earnings" do not include commissions, overtime, or any other special compensation.
(Id.) If earnings from rehabilitative employment fluctuate from month to month, the deduction
under the Rehabilitation Provision fluctuates accordingly. (D.I. 28 at 6)
The Plan sets forth a three-year statute of limitations period for an insured to bring a
lawsuit against Reliance to recover benefits under the LTD policy. (Tr. at 16)
C.
Dr. Patrick's Benefits History
Reliance approved Dr. Patrick's claim for LTD benefits on April 15, 2009, as she was
determined to be "Totally Disabled" under the Plan. (D.I. 30 at 7-8) Using a."Covered Monthly
Earnings" amount of $20,000, Reliance determined that Dr. Patrick was eligible for the $12,000
7
For example, if an employee is receiving $12,000 per month in benefits and generates a net
income of $4,000 through rehabilitative employment, the benefit is reduced by $2,000, totaling
$10,000.
4
maximum benefit, retroactively effective on October 8, 2008. (Id.) Reliance consistently paid
and continues to pay Dr. Patrick LTD benefits. (D.I. 28 at 3) On May 18, 2010, while reviewing
MAGIC's April 2010 financial statement, Reliance discovered that Dr. Patrick had $13,468.16 in
net income for March 2010. (D.I. 30 at 8) On September 22, 2010, Reliance notified Dr. Patrick
that her benefits would be reduced by 50% of her net income pursuant to the Rehabilitation
Provision. (Id.) Dr. Patrick was also notified of her right to appeal. (D.I. 28 at 4)
Dr. Patrick appealed Reliance's determination on September 23, 2010. (Tr. at 982-85)
Dr. Patrick argued that Reliance erroneously interpreted the Rehabilitation Provision because
under the Employment Agreement, she was not eligible to receive income while her Overall
Capital Account balance was negative. (Id. at 982; D.I. 30 at 8)
The Employment Agreement states that an employee shall receive "total compensation"
as follows:
Employers shall first determine the gross collections ... from all clinical services
provided by the Employee, and to such amount shall be added the Employee's
equal (prorated) share of any net profit generated by all non-shareholder
physicians and/or other employees employed by the Employer (the sum of which
is referred to below as Employee's "gross collections").
From the sum of such Employee's gross collections ... shall be subtracted the
Employee's allocation of the "shared expenses" ... defined as the rent, utilities and
associated costs for all offices used by the physician employed by the Employer,
all of the telephone expenses of the Employer, the costs, salaries, and retirement
plan contributions, etc. of all non-physician staff employed by the Employer, and
all other of the Employer's expenses for whichthe shareholders of the Employer
agree are used or are to be used in common.
Employee's gross collections shall then be reduced by her allocated portion of the
shared expenses, and the balance thereof shall be the "total compensation" due to
Employee for services rendered.
Employer and Employee shall calculate such amounts on a quarterly basis, and
although Employee may be paid an agreed upon salary "draw" or base salary on a
5
·•
•.
monthly basis, Employer and Employee agree to reconcile such draw against the
amounts actually due to the Employee pursuant to paragraph 4 at least quarterly.
(Tr. at 1841-42)
On November 16, 2010, Reliance rejected the appeal. (D.I. 28 at 5) Reliance explained
that Dr. Patrick was eligible to receive benefits under the Rehabilitation Provision, as she had
returned to gainful employment. (Id.) While Dr. Patrick's earnings might be retained and
applied against her negative Overall Capital Account balance, Reliance determined that she was,
nonetheless, earning income. (Id. at 6) Therefore, the Plan would continue to pay benefits offset
by 50% of earnings generated. (Id.) Reliance informed Dr. Patrick that the decision was final,
she had exhausted her administrative remedies, and she had a right to file suit. (Id.)
Pursuant to the Rehabilitation Provision, Reliance continued to reduce Dr. Patrick's LTD
benefits throughout 2010. (Id.) On March 4, 2011, Dr. Patrick appealed the benefit calculation
for July through October of 2010, again arguing that she did not receive earnings because of her
negative Overall Capital Account balance at MAGIC. (Id.) Reliance rejected the request for
another appeal, as the appeal review had already been closed. (Tr. at 1627)
From January 2011 to November 2013, Dr. Patrick did not work and received the full
$12,000 monthly benefit. (D.I. 28 at 6) Reliance monitored Dr. Patrick's financial records
throughout the benefit period and observed that Dr. Patrick had $19,000 of net income in
November of 2013. (Id.) Therefore, Reliance applied the Rehabilitation Provision's 50%
reduction for that month. (Id.) On January 24, 2014, Dr. Patrick tried to challenge the manner in
which the Rehabilitation Provision was interpreted, again asserting that her benefits were
erroneously reduced because she was not receiving income due to her negative Overall Capital
Account balance at MAGIC. (Id.) Reliance denied the challenge because Dr. Patrick had already
exhausted her available appeals on the issue. (Id.)
6
On September 12, 2014, Reliance determined that Dr. Patrick received Other Income
pursuant to a separate Plan provision based on her ownership interest in MAGIC. (Tr. at 165455) Based on Dr. Patrick's receipt of passive income attributable to her equity interest, Reliance
believed that it overpaid her benefits by $123,689.28. (Id.) Reliance permitted Dr. Patrick to
appeal this matter because it deemed this a separate adverse determination, made pursuant to a
Plan provision unrelated to the Rehabilitation Provision. (D.I. 28 at 8) In her appeal, Dr. Patrick
also attempted another challenge to Reliance's interpretation of the Rehabilitation Provision.
(Id.) On January 9, 2015, Reliance reversed its finding on the Other Income provision in Dr.
Patrick's favor. (Id.)
In the course of its review of the Other Income appeal, Reliance hired a Certified Public
Accountant ("CPA"), Connie Cardamone, to provide a new accounting analysis of Dr. Patrick's
earnings received under the Rehabilitation Provision, and to retroactively recalculate her benefits
if necessary. (Tr. at 1645-46) Ms. Cardamone determined that, because certain income and
expenses at MAGIC were inconsistently applied to Dr. Patrick's account, Dr. Patrick's benefits
should be adjusted using a monthly average of annual net profit or loss rather than adjusting
benefits monthly. (Id.)
Reliance asserts that there were no year-end statements for 2010 to 2011. (Id.) To
determine Dr. Patrick's income for that period, Ms. Cardamone used financials from 2007 to
2009. (Id.) Accordingly, she calculated that Dr. Patrick's Overall Capital Account balance was
negative $167,015 as of December 31, 2009. (Id.) Ms. Cardamone then worked back from the
November 2014 statement to determine that by December 31, 2011, Dr. Patrick had a negative
Overall Capital Account balance of $57,498. (Id.) Using the difference between the two
balances, Ms. Cardamone concluded that Dr. Patrick had positive earnings of $109,517 from
7
2010 to 2011. (Id.) Finally, Ms. Cardamone used 2010 through 2011 monthly statements to
conclude that Dr. Patrick did not earn income in 2011. (Id.) Therefore, Dr. Patrick must have
earned the $109,517, or $9,126.42 per month, during 2010. (Id.) Reliance notified Dr. Patrick of
this new calculation under the Rehabilitation Provision in its January 9, 2015 letter addressing
the Other Income appeal. (Id.) Subsequently, Reliance retroactively applied a reduction to Dr.
Patrick's 2010 benefits pursuant to the Rehabilitation Provision. (Id.) Using this recalculation,
Reliance determined that from July through October of 2010, Dr. Patrick was underpaid by
$17,659.07, but she was overpaid $36,505.68 from January through June and November to
December of 2010. (D.I. 34 at 19-20)
Dr. Patrick was credited for the net underpayment. (Id.) Reliance also reiterated its
position regarding application of the 50% reduction under the Rehabilitation Provision, and that
Dr. Patrick had exhausted her administrative remedies regarding the same. (D.I. 28 at 9)
On February 19, 2015, Dr. Patrick filed the complaint in this court. (D.I. 1) In relevant
part, the complaint alleges that:
38. Defendant Reliance has erroneously interpreted the plain and ordinary
meaning of the LTD Policy and improperly reduced Plaintiffs long term
disability monthly payments based on their wrongful claim that she is entitled to
receive income from [MAGIC].
39. As a result, [Reliance] has wrongfully denied Plaintiff all of her benefits for
the month ofNovember 2013.
40. [Reliance] has also wrongfully claimed that it [overpaid] Dr. Patrick's
monthly benefits from 2010 through the present and is wrongfully seeking
reimbursement from Dr. Patrick of that alleged overpayment of monthly benefits
from 2010 through the present.
41. [Reliance's] reduction of Dr. Patrick's monthly disability benefits is contrary
to the terms of the LTD Policy and Plan.
42. [Reliance's] decisions to deny Plaintiff all of her benefits and claim
repayment were erroneous and unreasonable.
8
(Id.
at~~
38-42)
The parties filed cross-motions for summary judgment on October 1, 2015. (D.I 27; D.I.
29) Dr. Patrick asks the court to "[i]nterpret the term, 'earnings received' ... to mean Dr. Patrick
does not receive a salary, wages or net income until the balance of her [Overall Capital Account]
is positive .... " (D.I. 30 at 25) Dr. Patrick also seeks an order requiring "Reliance to recalculate
Dr. Patrick's monthly benefits from 2009 to the present consistent with the Court's interpretation
of' earnings received.' and pay Dr. Patrick benefits that were erroneously reduced due to
Reliance's offsets under the Rehabilitation Benefit provision." (Id.) Reliance asserts that Dr.
Patrick's claims are moot or barred by the statute oflimitations. (D.I. 28 at 19-20) Alternatively,
Reliance asserts that the administrative decisions should be upheld. (Id.)
On November 25, 2015, Reliance filed a motion for leave to file a sur-reply in response
to Dr. Patrick's motion for summary judgment. (D.I. 41) Dr. Patrick opposes the motion. (D.I.
44)
III.
LEGAL STANDARDS
A.
Summary Judgment
A court shall grant summary judgment only if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of proving that no genuine
issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586 n.10 (1986). "Facts that could alter the outcome are material, and disputes are genuine
if evidence exists from which a rational person could conclude that the position of the person
with the burden of proof on the disputed issue is correct." Horowitz v. Fed. Kemper Life
9
Assurance Co., 57 F.3d 300, 302 n.1 (3d Cir. 1995) (internal citations omitted). If the moving
party has demonstrated an absence of material fact, the nonmoving party then "must come
forward with 'specific facts showing that there is a genuine issue for trial."' Matsushita, 475
U.S. at 587 (quoting Fed. R. Civ. P. 56(e)). The court will "view the underlying facts and all
reasonable inferences therefrom in the light most favorable to the party opposing the motion."
Pennsylvania Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995). The mere existence of
some evidence in support of the nonmoving party, however, will not be sufficient for denial of a
\
motion for summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
There must be enough evidence to enable a jury to reasonably find for the nonmoving party on
that issue. See id. If the nonmoving party fails to make a sufficient showing on an essential
element of its case with respect to which it has the burden of proof, the moving party is entitled
to judgment as a matter oflaw. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The standard by which the court decides a summary judgment motion does not change
when the parties file cross-motions. Appelmans v. City ofPhila., 826 F.2d 214, 216 (3d
Cir.1987). Cross-motions for summary judgment
are no more than a claim by each side that it alone is entitled to summary
judgment, and the making of such inherently contradictory claims does not
constitute an agreement that if one is rejected the other is necessarily justified or
that the losing party waives judicial consideration and determination whether
genuine issues of material fact exist.
Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir.1968). "The filing of cross-motions for
summary judgment does not require the court to grant summary judgment for either party."
United Ass 'n ofJourneymen & Apprentice Plumbers & Pipefitters v. Int 'l Bhd. ofElec. Workers,
C.A. No. 12-1060-GMS-SRF, 2015 WL 1516948, at 2 (D. Del. Mar. 31, 2015), aff'd, 643 Fed.
App'x 133 (3d Cir. 2016) (quoting Krupa v. New Castle Cnty., 732 F. Supp. 497, 505 (D. Del.
1990)).
10
B.
ERISA Standard of Review
ERISA allows a beneficiary to bring a civil action against an administrator or fiduciary to
recover benefits due under the terms of a benefit plan. See 29 U.S.C. § 1132(a)(l )(B). 8 Courts
should review a denial of insurance benefits ''under a de nova standard" unless the plan grants
discretionary authority. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008) (quoting
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)). If a plan grants discretionary
authority to an administrator or fiduciary, a ~ourt must apply the arbitrary and capricious
standard when reviewing administrative decisions. See id. Under this standard, the plaintiff has
the burden of showing that the administrator's denial of benefits was "without reason,
unsupported by substantial evidence or erroneous as a matter of law" using the evidence
available to the administrator at the time of the decision. Johnson v. UMWA Health & Ret.
Funds, 125 F. App'x 400, 405 (3d Cir. 2005) ("This Court has made clear that the record for
arbitrary and capricious review of ERISA benefits denial is the record made before the plan
administrator which cannot be supplemented during litigation."). "A decision is supported by
substantial evidence if there is sufficient evidence for a reasonable person to agree with the
decision." Courson v. Bert Bell NFL Player Ret. Plan, 214 F.3d 136, 142 (3d Cir. 2000)
(citation omitted). Thus, when a plaintiff disputes the benefit denial under a plan that grants
discretionary authority to the administrator, the court's task is to determine "whether or not,
based on the undisputed administrative record, [the administrator's] decision was an abuse of
discretion." Malin v. Metro. Life Ins. Co., 845 F. Supp. 2d 606, 611-12 (D. Del. 2012) (quoting
8
The statute states in part: "A civil action may be brought-(1) by a participant or beneficiary··· (B) 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)(l)(B).
11
Kao v. Aetna Life Ins. Co., 647 F. Supp. 2d 397, 409 (D.N.J. 2009)); see also Marciniakv.
Prudential Fin. Ins. Co. ofAm., 184 F. App'x 266, 270 (3d Cir. 2006).
C. .
Statute of Limitations
The parties agree that Delaware's one year statute of limitations for claims for recovery
ofbenefits, as well as ERISA claims under 29 U.S.C. § 1132(a)(l)(B), applies to the present
action. See 10 Del. C. § 8111; see also Syedv. Hercules, Inc., 214 F.3d 155, 159 (3d Cir. 2000)
(holding that the one year statute oflimitations at 10 Del. C. § 8111 is applicable to claims for
recovery of benefits under an ERISA plan); (D.I. 28 at 12; D.I. 30 at 24) Pursuant to 10 Del. C. §
8111:
No action for recovery upon a claim for wages, salary, or overtime for work, labor
or personal services performed, or for damages ... , or for interest or penalties
resulting from the failure to pay any such claim, or for any other benefits arising
from such work, labor or personal services performed or in connection with any
such action, shall be brought after the expiration of 1 year from the accruing of
the cause of action on which such action is based.
10 Del. C. § 8111.
The issue in contention is when the cause of action accrued. (D.I. 28 at 12; D.I. 30 at 24)
The accrual date for an ERISA claim is the date that the defendant clearly repudiates coverage.
See Miller v. Fortis Benefits Ins., Co., 475 F.3d 516, 520 (3d Cir.2007). For example, "an
erroneously calculated award of benefits under an ERISA benefit plan can trigger[] the statute of
limitations, as long as it is (1) a repudiation; and (2) is clear and made known to the beneficiary."
Id. at 521 (citation omitted). "[A] new cause of action [does not] accrue upon each [alleged]
underpayment of benefits owed under the plan. Id. at 522; see also Henglein v. Colt Indus.
Operating Corp., 260 F.3d 201, 213-14 (3d Cir. 2001) (rejecting the continuing violation
approach).
12
IV.
DISCUSSION
In the present action, the parties agree that Reliance had discretionary authority to
determine claim eligibility. (D.I. 28. at 11; D.I. 30 at 14) Because of that authority, the court
must review Reliance's benefits determinations under the arbitrary and capricious standard using
only the evidence available to Reliance at the time of its decisions. See Metro. Life Ins. Co. v.
Glenn, 554 U.S. 105, 111.(2008). Reliance contends that summary judgment should be granted
in its favor because Dr. Patrick's claims are time-barred, Reliance's policy interpretation was
reasonable, and Dr. Patrick's overpayment claim.is moot. (D.I. 28) Dr. Patrick argues that her
claims are not time-barred, and she identifies five reasons why summary judgment is warranted
in her favor: (1) Reliance operated under a structural conflict of interest; (2) Reliance failed to
comply with§ 503 ofERISA and 29 C.F.R. § 2560.503-1; (3) Reliance failed to properly
construe the Rehabilitation Provision in an ordinary and plain manner as would a person of
average intelligence; (4) Reliance inappropriately recalculated Dr. Patrick's benefits using
passive income from other entities; and (5) Reliance unfairly took double deductions in 2010.
(D.I. 30)
A.
Statute of Limitations
Reliance argues that Dr. Patrick's ERISA claims are time-bared by the applicable one
year statute of limitations, 10 Del. C. § 8111, and Delaware's three year limitations period for
breach of contract actions, 10 Del. C. § 8106(a). (D.I. 28 at 12-15) Reliance contends that Dr.
Patrick's claims accrued on November 16, 2010, the date Reliance issued its final determination
on Dr. Patrick's appeal ofwhether she received earnings under the Rehabilitation Provision. (Id.
at 12) At that point, Dr. Patrick exhausted her remedies regarding the same. (Id. at 13) Reliance
argues that a new cause of action did not accrue with the January 9, 2015 Other Income decision
13
letter because Reliance merely conducted a "voluntary, extra-contractual review" of Dr. Patrick's
Rehabilitation benefits therein. (Id. at 13-14) Reliance's interpretation of the Rehabilitation
Provision remained the same since its initial 2010 findings. (Id. at 14-15) Reliance asserts that
Dr. Patrick may not use a subsequent recalculation to extend the statute of limitations on that
issue. (Id.)
Dr. Patrick argues that her claims are not barred because her claims accrued on January 9,
I
2015, when Reliance decided the Other Income appeal and recalculated her benefits under the
Rehabilitation Provision. (D.I. 30 at 24) The recalculation was a new benefit determination.
(D.I. 35 at 20-21) "Reliance cannot equitably be permitted to perform an extensive recalculation
in 2014 and Dr. Patrick have absolutely no judicial rights to challenge the recalculation." (Id. at
21) Therefore, Dr. Patrick contends that her complaint was timely because she filed it on
February 19, 2015, less than one year from the accrual date. 9 (Id.)
On September 12, 2014, Reliance determined that Dr. Patrick was overpaid $123,689.28
.
I
because she received Other Income based on her ownership interest in MAGIC. (Tr. at 1751-52)
I
After Dr. Patrick appealed, on January 9, 2015, ~eliance reversed its finding in Dr. Patrick's
favor. (Id.) Consequently, the overpayment iss1te is moot. However, in issuing the January 9,
2015 decision letter, Reliance, on its own initiative, retained an accountant, Ms. Cardamone, to
review additional financial records. (Id. at 1645-46) Reliance retroactively recalculated Dr.
9
Dr. Patrick also argues that the statute oflimitations was not triggered by the November 16,
2010 decision because Reliance failed to comply with 29 C.F.R. § 2560.503-l(g) in not notifying
her of the contractual limitations period in the decision letter. (D.I. 35 at 16) However, the
Mirza court held that the remedy for non-compliance with§ 2560.503-l(g) is to abandon the
plan's statute of limitations and adopt the most analogous state law statute of limitations-one
year in this case. Mirza v. Ins. Adm 'r. ofAm., Inc., 800 F.3d 129, 137-38 (3d Cir. 2015).
Accordingly, Mirza merely stands for the proposition that the court should apply the one year
statute of limitations. Id. Mirza does not affect the accrual date. Id.
14
Patrick's earnings based on the accountant's finding that Dr. Patrick's benefits should be
adjusted using a different formula. (Id.) Accordingly, Reliance retroactively reduced Dr.
Patrick's 2010 LTD benefits under the Rehabilitation Provision. (Id.) Using this recalculation,
Reliance determined that from July through October of2010, Dr. Patrick was underpaid by
$17,659.07, but she was overpaid $36,505.68 from January through June and November to
December of2010. (D.I. 34 at 19-20) Dr. Patrick was "credited" for the net underpayment. (Id.)
However, Reliance continued to take deductions to offset the overpayment. (Id., Ex. A
at~
21)
In the January 9, 2015 decision letter, Reliance did not limit its position to repeating its
interpretation of the Rehabilitation Provision. R~liance went further in retroactively
recalculating Dr.
~atrick's
LTD benefits based oi;i. a new formula prepared by an accountant. (Tr.
at 1646) The accountant had no prior involvement with Reliance's original LTD benefit
determination. (Id.) The decision to recalculate pr. Patrick's benefits equates to a new adverse
i
benefits determination. Thus, a challenge to
Re~iance' s
recalculation is not barred by the one
year statute oflimitations. To hold otherwise would foreclose any recourse by Dr. Patrick to
dispute the new calculation. 10
Reliance cites Stafford v. E.I DuPont De Nemours for the proposition that a ''benevolent"
decision to reopen a case does not toll the statute oflimitations in ERISA cases. 27 Fed. App'x
137, 140 (3d Cir. 2002). However, Stafford is distinguishable because there, the defendant had a
procedure to allow employees to attempt to reopen cases, and the court did not "intend to
10
An ERISA plan participant must exhaust her administrative remedies before seeking relief in
federal court unless doing so would be futile. Gregorovich v. E.I du Pont de Nemours, 602 F.
Supp. 2d 511, 519 (D. Del. 2009). Reliance points out that the January 9, 2015 letter exhausted
Dr. Patrick's administrative remedies relative only to her Other Income claim. (D.I. 34 at 12-13)
However, Reliance stated in its January 9, 2015 letter that the decision to offset benefits paid
during 2010 pursuant to the Rehabilitation Provision was "final," and Dr. Patrick had "exhausted
her only administrative appeal pursuant to [the] decision." (Tr. at 1646)
15
discourage such benevolence." Id. at 140. In the present action, Reliance did not have a similar
procedure to re-open .an old case file. Reliance may not use the argument that it conducted an
"extra-contractual review" as a sword and a shield to simultaneously adopt a new benefits
calculation, but allow Dr. Patrick no recourse to appeal that new calculation. Therefore, Dr.
Patrick's claims are not barred by the statute oflimitations, as the claim accrued on January 9,
2015, when Reliance notified Dr. Patrick of the new calculation. Any further attempt by Dr.
Patrick to appeal it would have been futile, so the suit was timely filed in the following month.-
B.
Whether Reliance's.Decisions Were Arbitrary and Capricious
In deciding whether an administrator's conclusion is arbitrary and capricious, courts
consider procedural and structural factors of the decision making process. See Miller v. Am.
Airlines, 632 F.3d 837, 845 (3d Cir. 2011) (citing Metro. Life Ins. Co. v. Glenn, 554 U.S. 105,
116-17 (2008); Estate ofSchwing v. The Lilly Health Plan, 562 F.3d 522, 525-26 (3d Cir. 2009)).
Dr. Patrick argues that Reliance's structural conflict of interest, coupled with many procedural
irregularities, establishes that Reliance's decisions were arbitrary and capricious. (D.I. 30 at 15)
1. Structural conflict of interest
The structural inquiry focuses on how the plan is funded and the financial incentives of
the administrator. Post v. Hartford Ins. Co., 501F.3d154, 162 (3d Cir. 2007), overruled on
other grounds by Doroshow v. Hartford Life and Acc. Ins. Co., 574 F.3d 230 (3d Cir. 2009). The
essential question is "whether the administrator's incentives make treating it as an unbiased
fiduciary counterintuitive." Id. at 163 (citing Pinto v. Reliance Std. Life Ins. Co., 214 F.3d 377,
388 (3d Cir. 2000)) . The structural conflict of interest "should prove less important (perhaps to
the vanishing point) where the administrator has taken active steps to reduce potential bias and to
promote accuracy .... " Glenn, 5 54 U.S. at 11 7. The reviewing court can give this factor more
16
or less weight depending on the likelihood that the conflict.actually affected the administrator's
decision. Id. Thus; while the conflict of interest does notalter the standard of review, it
constitutes a factor that a court must evaluate and then consider in its decision. See Smith v.
Automatic Data Processing, Inc., 931 F. Supp. 2d 623, 627 (D. Del. 2013).
It is undisputed that Reliance makes claims determinations and funds benefits to eligible
claimants. Reliance does not contest that it uses the Plan's premiums to compensate itself, and
therefore a structural conflict of interest exists. (D.I. 34 at 9) However, Reliance argues that this
structural irregularity should be overlooked because it is merely a "tie-breaker" for the court to
consider among many other factors. (Id.) Because the other factors are not "closely aligned,"
"there is no tie to be broken." (Id.)
Although a structural conflict of interest existed, Reliance took steps to minimize that
I
conflict. See Smith, 93 l F. Supp. 2d at 629 (finding the weight of the structural conflict of
interest factor was minimized when defendant took steps to minimize the conflict). For example,
Reliance took steps to promote accuracy by re-reyiewing claims and reversing its erroneous
i
Other Income finding on appeal. (D.I. 34 at 9) Additionally, Dr. Patrick has not submitted
evidence indicating that the conflict actually affected Reliance's decisions. See Glenn, 554 U.S.
I
at 117 (the court can give less weight to this factor depending on the likelihood that the conflict
affected the defendant's decisions). In fact, Reliance paid Dr. Patrick's benefits without
challenging her underlying disability claim. (Id.) Therefore, although the court has considered
the structural conflict of interest, this factor does not tip the scales in favor of a finding that
Reliance's decisions were arbitrary and capricious.
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2. Procedural irregularities
The procedural inquiry focuses
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