Zuckerman v. United of Omaha Life Insurance Company et al

Filing 56

MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr on 5/31/2011. Notices Mailed by Judge's Staff(tbk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
RACHEL ZUCKERMAN,
Plaintiff,
v.
UNITED OF OMAHA LIFE INSURANCE
COMPANY, AMERICAN
PHARMACEUTICALS PARTNERS, INC.,
and AMERICAN PHARMACEUTICALS
PARTNERS, INC. EMPLOYEE BENEFIT
PLAN,
Defendants.

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Case No.: 09-CV-4819
Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER
Currently before the Court is a motion to dismiss [48] Plaintiff Rachel Zuckerman’s first
amended complaint filed by Defendant American Pharmaceuticals Partners, Inc. (“APP” or “the
Plan”). Also pending is Defendant APP’s motion to strike jury demand [50]. For the reasons
stated below, the Court denies Defendant’s motion to dismiss [48] and grants Defendant’s
motion to strike jury demand [50].
I.

Background1
Plaintiff Rachel Zuckerman worked for Defendant APP as a Senior Scientist-project.

Defendant AAP sponsored the American Pharmaceuticals Partners, Inc. Employee Benefit Plan
(“Plan”). APP purchased Group Policy No. GUD-252C from Defendant United of Omaha to
fund the long-term disability (“LTD”) benefits offered under the Plan. As the insurer, United of

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For purposes of Defendants’ motion to dismiss, the Court assumes as true all well-pleaded allegations
set forth in the first amended complaint. See, e.g., Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d
614, 618 (7th Cir. 2007).

Omaha agreed to pay certain benefits to eligible Plan participants “subject to the terms,
conditions, and limitations of [the] Policy.”
On April 4, 2006, Plaintiff stopped working for APP due to the combined effects of
headaches, fibromyalgia, difficulty sleeping, and cognitive impairments, which Plaintiff believes
were the result of chemical exposure in the workplace. After leaving her employment, Plaintiff
filed a claim for worker’s compensation benefits. She also applied for Social Security disability
benefits, which she was awarded. APP advised Plaintiff that she was not eligible to apply for
LTD benefits while also seeking worker’s compensation benefits. APP later confirmed that
position in a letter sent by APP to United of Omaha on August 12, 2008. The letter states that
APP “instructed” Plaintiff not to file her disability claim until after her Worker’s Compensation
claim was resolved. Contrary to APP’s advice, Plaintiff was eligible for LTD benefits regardless
of causation because the LTD policy treats workers’ compensation benefits as an offset against
LTD benefits, but does not exclude benefit eligibility in the event of work-related injuries or
illnesses.
In reliance on APP’s representations, Plaintiff did not submit her claim form until July
29, 2008. At the time that she applied, Plaintiff was approved to receive short-term disability
benefits by Disability Management Services (“DMA”), which acted on behalf of the Plan with
respect to short-term benefits. Then, on November 24, 2008, Defendant United of Omaha issued
a determination that Plaintiff was not disabled. Plaintiff appealed this determination, but on May
11, 2009, United of Omaha upheld its decision and refused to pay benefits. In addition to
affirming its decision that Plaintiff was not disabled, United of Omaha raised an additional
reason for the denial, which previously had not been communicated to Plaintiff – namely, that
the claim was denied due to late notice of the claim and the failure to timely submit proof of loss.

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Count I of Plaintiff’s First Amended Complaint (“FAC”) seeks disability benefits from
United of Omaha Life Insurance Company (“United of Omaha”) and the Plan under §
502(a)(1)(B) of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §
1132(a)(1)(B). On July 21, 2010, the Court granted United of Omaha’s motion to dismiss Count
I against it because the Plan, not United of Omaha, was the proper defendant. Accordingly,
Count I remains only against the Plan. Defendant APP contends that the pleadings make clear
that the Plan properly denied Plaintiff’s claim for benefits as untimely and therefore the Plan is
not liable to Plaintiff under Count I.
II.

APP’s Motion to Dismiss
A.

Legal Standard On Motion To Dismiss

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the
sufficiency of the complaint, not the merits of the case. See Gibson v. City of Chicago, 910 F.2d
1510, 1520 (7th Cir. 1990). To survive a Rule 12(b)(6) motion to dismiss, the complaint first
must comply with Rule 8(a) by providing “a short and plain statement of the claim showing that
the pleader is entitled to relief” (Fed. R. Civ. P. 8(a)(2)), such that the defendant is given “fair
notice of what the * * * claim is and the grounds upon which it rests.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief
above the “speculative level,” assuming that all of the allegations in the complaint are true.
E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly,
550 U.S. at 555). “[O]nce a claim has been stated adequately, it may be supported by showing
any set of facts consistent with the allegations in the complaint.” Twombly, 550 U.S. at 563.

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The Court accepts as true all of the well-pleaded facts alleged by the plaintiff and all reasonable
inferences that can be drawn therefrom. See Barnes v. Briley, 420 F.3d 673, 677 (7th Cir. 2005).
On a Rule 12(b)(6) motion to dismiss, the Court generally must confine its inquiry to the
factual allegations set forth within the four corners of the operative complaint. See Rosenblum v.
Travelbyus.com, 299 F.3d 657, 661 (7th Cir. 2002). In the usual case, therefore, if a party
moving for a 12(b)(6) dismissal submits documents with its motion to dismiss, the Court either
must ignore the documents or convert the motion to one for summary judgment. See Fed. R.
Civ. Pro. 12(b); Venture Assoc. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir.
1993). However, “[d]ocuments that a defendant attaches to a motion to dismiss are considered
part of the pleadings,” and may be considered on a motion to dismiss, “if they are referred to in
the plaintiff’s complaint and are central to her claim.” Venture, 987 F.2d at 431. Documents that
fall within this “narrow” exception must be “concededly authentic.” Tierney v. Vahle, 304 F.3d
734, 738 (7th Cir. 2002).
Applying that standard, the Court will consider the following documents that are referred
to in Plaintiff’s complaint and central to her claims: (1) APP’s Group Policy No. GUD-252C,
which APP purchased from United of Omaha to fund long-term disability benefits offered under
the APP Employee Benefit Plan (“Plan”); and (2) a letter dated August 12, 2008, from APP to
United of Omaha, advising United of Omaha that APP advised Plaintiff not to file her disability
claim until after her Worker’s Compensation claim was resolved.
B.

Analysis

APP seeks to dismiss Count I of Plaintiff’s complaint because she failed to file a timely
claim for LTD benefits. Plaintiff does not dispute that the claim she submitted to the Plan was
untimely. However, she maintains that because the Plan admittedly misled her into deferring the

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submission of her claim, the Plan waived its right to rely on the limitation period. In addition,
Plaintiff contends that the Plan has not made a showing of prejudice resulting from the untimely
claim.
ERISA sets certain minimum requirements for procedures and notification when a plan
administrator denies a claim for benefits. In a nutshell, ERISA requires that specific reasons for
denial be communicated to the claimant and that the claimant be afforded an opportunity for
“full and fair review” by the administrator. See Halpin v. W.W. Grainger, Inc., 962 F.2d 685,
689 (7th Cir. 1992). Section 1133 of ERISA reads as follows:
In accordance with regulations of the Secretary, every employee benefit plan
shall(1)

provide adequate notice in writing to any participant or beneficiary whose
claim for benefits under the plan has been denied, setting forth the specific
reasons for such denial, written in a manner calculated to be understood by
the participant, and

(2)

afford a reasonable opportunity to any participant whose claim for benefits
has been denied for a full and fair review by the appropriate named
fiduciary of the decision denying the claim.

29 U.S.C. § 1133. The regulations promulgated by the Secretary require that the initial notice of
a claim denial contain the following:
(1)

The specific reason or reasons for the denial;

(2)

Specific reference to pertinent plan provisions on which the denial is
based;

(3)

A description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material or
information is necessary; and

(4)

Appropriate information as to the steps to be taken if the participant or
beneficiary wishes to submit his or her claim for review.

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29 C.F.R. § 2560.503-1(f). These requirements insure that when a claimant appeals a denial to
the plan administrator, he will be able to address the determinative issues and have a fair chance
to present his case. See Halpin, 962 F.2d at 689. As the Seventh Circuit noted in Wolfe v. J.C.
Penney Co., “[d]escribing additional information needed and explaining its relevance, as
required by subsection (3) of 29 C.F.R. § 2560.503-1, enables a participant both to appreciate the
fatal inadequacy of his claim as it stands and to gain a meaningful review by knowing with what
to supplement the record.” 710 F.2d 388, 392 (7th Cir. 1983); see also Halpin, 962 F.2d at 690
(“Our case law, which is in accord with that of the other circuits, makes clear that these
regulations are designed to afford the beneficiary an explanation of the denial of benefits that is
adequate to ensure meaningful review of that denial.”); Brown v. Retirement Committee of
Briggs & Stratton Retirement Plan, 797 F.2d 521 (7th Cir. 1986) (“[T]he persistent core
requirements of review intended to be full and fair include knowing what evidence the decisionmaker relied upon, having an opportunity to address the accuracy and reliability of that evidence,
and having the decision-maker consider the evidence presented by both parties prior to reaching
and rendering his decision.”). In determining whether a plan complies with the applicable
regulations, substantial compliance is sufficient. See Halpin, 962 F.2d at 690.
Defendant takes the position that the Plan’s citation to the untimeliness of Plaintiff’s
appeal “in its letter denying Plaintiff’s benefits appeal” was acceptable because while ERISA
prohibits “an attempt by a plan to supply a new rationale for denying benefits after the claim is in
litigation,” it does not prohibit a plan “from denying a claim based on defenses not considered
during the plan’s initial claims review. Def. Br. [53] at 2 (emphasis in original). Unfortunately
for Defendant, Halpin holds otherwise. In that case, the Seventh Circuit explained that, “[i]n a
nutshell, ERISA requires that specific reasons for denial be communicated to the claimant and

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that the claimant be afforded an opportunity for ‘full and fair review’ by the administrator.”
Halpin, 962 F.2d at 688 (emphasis added); see also Reich v. Ladish Co., 306 F.3d 519, 524 n.1
(7th Cir. 2002) (“Ladish was required to give Reich every reason for its denial of benefits at the
time of the denial.”) (emphasis added). Only by providing every reason for the denial can the
participant “appreciate the fatal inadequacy of his claim as it stands” and “gain a meaningful
review by knowing with what to supplement the record” between the initial notice of a claim
denial and the determination under the internal appeals process. Halpin, 962 F.2d at 689; see
also Wolfe v. J.C. Penney Co., 710 F.2d 388, 392 (7th Cir. 1983). In short, as the Seventh
Circuit has stressed, the requirements for claim denials under ERISA and its implementing
regulations “enable the claimant to prepare adequately ‘for any further administrative review, as
well as appeal to the federal courts.” Halpin, 962 F.2d at 689 (emphasis added) (quoting
Matuszak v. Torrington Co., 927 F.2d 320, 323 (7th Cir. 1991)).
Construing the facts in the light most favorable to Plaintiff, APP admittedly misled
Plaintiff into deferring the submission of her claim. APP advised Plaintiff that she was not
eligible to apply for LTD benefits while also seeking worker’s compensation benefits. APP later
confirmed that position in an August 2008 letter sent by APP to United of Omaha, stating that
APP “instructed” Plaintiff not to file her disability claim until after her Worker’s Compensation
claim was resolved. Relying on APP’s representations, Plaintiff did not submit her claim form
until July 29, 2008. It turns out that APP was wrong, and that Plaintiff was eligible for LTD
benefits regardless of causation because the LTD policy treats workers’ compensation benefits as
an offset against LTD benefits, but does not exclude benefit eligibility in the event of workrelated injuries or illnesses.

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APP now asks the Court to dismiss Count I because Plaintiff, relying on APP’s advice,
failed to file a timely claim for LTD benefits. Yet the timeliness of Plaintiff’s claim was not
raised until after United of Omaha denied the long-term disability claim on the merits and
Plaintiff had exhausted her appeal rights pursuant to 29 U.S.C. § 1133. In fact, United of
Omaha’s initial letter denying benefits made no reference to the timeliness of Plaintiff’s claim.
As set forth above, the ERISA statute and regulations require plans to set forth reasons when a
claim is initially denied, in order to permit the claimant to “full and fair” review by the
administrator of any issues raised by the claimant on appeal. Raising a new issue—timeliness—
at the time that the final claim determination was issued and appeals were exhausted left Plaintiff
without the opportunity to respond, as both the ERISA statute and its accompanying regulations
require. See 29 U.S.C. § 1133(1) (requiring that every benefit plan must “provide adequate
notice in writing to any participant or beneficiary whose claim for benefits under the plan has
been denied, setting forth the specific reasons for such denial, written in a manner calculated to
be understood by the participant.”) (emphasis added); 29 C.F.R. § 2560.503-1(g)(i) (mandating
that the benefit determination set forth “[t]he specific reason or reasons for the adverse
determination”). As clearly stated by the Seventh Circuit in Halpin, a “post hoc attempt to
furnish a rationale for a denial of * * * benefits in order to avoid reversal on appeal, and thus
meaningful review’ is not acceptable.” 962 F.2d at 696 (internal quotations omitted).
In light of the foregoing discussion, the Court determines that APP’s post hoc rationale
for denying benefits based upon the previously unasserted timeliness requirement is prohibited
by ERISA. The Court finds that APP’s letter of November 24, 2008, which made no reference to
the timeliness of Plaintiff’s claim, did not “substantially comply” with the ERISA statute and
regulations because it did not set forth untimeliness as a specific reason for the denial of

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Plaintiff’s benefits. See Reich v. Ladish Co. Inc., 306 F.3d 519, 524 n.1 (7th Cir. 2002) (“Ladish
was required to give Reich every reason for its denial of benefits at the time of the denial.”)
(emphasis added). Springing a new “defense” to a claim at the conclusion of the administrative
appeal process defeats both prongs of the “‘full and fair’ review by the administrator” mandated
under ERISA.

Halpin, 962 F.2d at 688; see also 29 U.S.C. § 1133.

“ERISA and its

accompanying regulations ‘were intended to help claimants process their claims efficiently and
fairly; they were not intended to be used by the Fund as a smoke screen to shield itself from
legitimate claims’” (Short v. Central States, S.E. & S.W. Areas Pension Fund, 729 F.2d 567, 575
(8th Cir. 1984) (quoting Richardson v. Central States, S.E. & S.W. Areas Pension Fund, 645
F.2d 660, 665 (8th Cir. 1981)); Halpin, 962 F.2d at 696), which is exactly what APP attempts to
do through its motion. APP’s motion to dismiss [48] is denied.
III.

APP’s Motion to Strike Jury Demand
Plaintiff alleges that she is entitled to disability benefits under the Plan and, pursuant to §

502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), seeks: (1) judgment in her favor; (2) an order
directing Defendants to pay disability income benefits in the amount required by the Plan; and
(3) a “determin[ation] and then declar[ation] that Defendant Mutual of Omaha and/or the Plan is
required to continue paying Plaintiff benefits so long as she meets the policy terms and
conditions for receipt of benefits.” Citing the Supreme Court’s decision in Great-West Life &
Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), Plaintiff characterizes her ERISA claim as an
action that is “legal in nature” and maintains that she is entitled to a jury trial on her ERISA
claim.
In Knudson, an employee benefit plan sued under § 502(a)(3) of ERISA, 29 U.S.C. §
1132(a)(3), to recover certain benefit overpayments from plan beneficiaries. 534 U.S. at 208.

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The beneficiaries were injured in an automobile accident and the plan paid for the medical care
they received. Id. at 207. When the beneficiaries settled claims with the third parties responsible
for their injuries, the plan sought to enforce the plan provision requiring the beneficiaries to
repay the plan for the benefits it paid. Id. at 208. The Court held the plan was not entitled to
relief under § 502(a)(3) because that section only authorized equitable relief and the plan’s action
to impose personal liability on the participants based on a contractual obligation to pay money
was an action at law, not equity. As a result, the money damages the plan sought were legal, not
equitable remedies. Id. at 210-214.
In Plaintiff’s view, because she, like the plaintiff in Knudson, seeks money damages, her
claim is one for legal relief and she is entitled to a jury trial. But Knudson did not hold that a
claim to recover plan benefits under § 502(a)(1)(B) of ERISA was an action for legal remedies.
Nor did Knudson hold that there was a right to a jury trial for claims brought under ERISA.
Indeed, as Plaintiff acknowledges, the Court in Knudson did not address the issue of jury trials at
all. Additionally, all eleven Circuit Courts that have reviewed the issue of whether there is a
right to a jury trial under § 502(a) of ERISA have concluded that there is no such right. See
Hampers v. W.R. Grace & Co., Inc., 202 F.3d 44, 54 (1st Cir. 2000); Sullivan v. LTV Aerospace
and Defense Co., 82 F.3d 1251, 1258 (2nd Cir. 1996); Pane v. RCA Corp., 868 F.2d 631, 636
(3rd Cir. 1989); Berry v. CIBA-GEIGY Corp., 761 F.2d 1003, 1007 (4th Cir. 1985); Borst v.
Chevron Corp., 36 F.3d 1308, 1323-24 (5th Cir. 1994); Bittinger v. Tecumseh Prod. Co., 123
F.3d 877, 883 (6th Cir. 1997); Wardle v. Central States, S.E. and S.W. Areas Pension Fund, 627
F.2d 820, 829 (7th Cir. 1980); In re Vorpahl, 695 F2d. 318, 322 (8th Cir. 1982); Thomas v.
Oregon Fruit Prod. Co., 228 F.3d 991, 996 (9th Cir. 2000); Adams v. Cyprus AMAX Minerals
Co., 149 F.3d 1156, 1161-62 (10th Cir. 1998); Blake v. UnionMutual Stock Life Ins. Co. of Am.,

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906 F.2d 1525, 1526 (11th Cir. 1990).2 Moreover, the Seventh Circuit has continued to hold that
jury trials are unavailable for ERISA plaintiffs after Great-West.3 See Patton v. MFS/Sun Life
Fin. Distribs., 480 F.3d 478, 484 (7th Cir. 2007) (“the plaintiff has no right to a jury trial” in
ERISA case); McDougall v. Pioneer Ranch Ltd. P’ship, 494 F.3d 571, 575-76 (7th Cir. 2007)
(“[T]here is no right to a jury trial because ERISA’s antecedents are equitable, not legal.”); see
also George v. Kraft Foods Global, Inc., 2008 WL 780629, at *5 (N.D. Ill. Mar. 20, 2008)
(rejecting an argument identical to Plaintiff’s “in light of the fact that since Great-West, the
Seventh Circuit has twice stated * * * that there is no jury trial right for ERISA claims.”).
Accepting Plaintiff’s argument that Knudson cleared the way for jury trials in ERISA
cases requires the court “to presume the Supreme Court * * * intended, sub silentio, to overturn”
that widely-accepted and long-established rule. Richardson v. Astellas U.S. LLC Employee
Benefit Plan and Life Ins. Co. of North America, 610 F. Supp. 2d 947, 952 (N.D. Ill. 2009)
2

Numerous courts in this District likewise have rejected Plaintff’s expansive reading of Great-West.
See, e.g., Richardson v. Astellas U.S. LLC Employee Benefit Plan and Life Ins. Co. of North America, 610
F.Supp.2d 947, 952 (N.D. Ill. 2009); Walker v. Life Ins. Co. of N. Am., 2009 WL 561834 (N.D. Ill. Mar.
2, 2009); George v. Kraft Foods Global, Inc., 2008 WL 780629 (N.D. Ill. Mar. 20, 2008); Jetseck v.
Prudential Ins. Co. of Am., 2007 WL 3449031 (N.D. Ill. Nov. 15, 2007). As these courts noted, nowhere
in the Great-West opinion did the Supreme Court address the right to a jury trial under ERISA.
Furthermore, the plaintiff in Great-West was a plan fiduciary suing for what was in essence a breach of
contract by the beneficiary, which is distinct from a claim brought by a plan beneficiary against the
fiduciary challenging a benefits determination. See Aetna Health Inc. v. Davila, 542 U.S. 200, 218 (2004)
(“[A] benefit determination under ERISA * * * is generally a fiduciary act.”). This is particularly true
where, as here, the plaintiff is seeking declaratory and injunctive relief in the form of an order requiring
the defendant “to continue paying Plaintiff benefits so long as she meets the policy terms and conditions
for receipt of benefits.” This type of relief is equitable in nature. See, e.g., America's MoneyLine, Inc. v.
Coleman, 360 F.3d 782, 786 (7th Cir. 2004) (declaratory judgment and injunctive relief are equitable
remedies).
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Plaintiff’s reliance on the Seventh Circuit’s recent opinion in Mondry v. Am. Family Mutual Ins. Co.,
557 F.3d 781 (7th Cir. 2009), is unavailing. In that case, the Seventh Circuit held that a plaintiff cannot
recover monetary relief under ERISA’s equitable relief provision, Section 1132(a)(3), when he is able to
recover benefits under Section 1132(a)(1)(B). Id. at 804-05. The Court did not decide whether a claim
for benefits under Section 1132(a)(1)(B) is a legal claim for purposes of the Seventh Amendment, or
whether there is a right to a jury trial on such a claim. See id.

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(quoting George, 2008 WL 780629, at *5). In the face of overwhelming precedent that there
simply is no right in this context, the Court cannot conclude that such a right exists. To the
extent that Plaintiff believes the Seventh Circuit should re-examine its holdings in these cases
and give Great-West a more expansive reading, Plaintiff’s argument must be addressed to the
Seventh Circuit.

This Court has no authority to disregard the settled law of this Circuit.

Accordingly, the Court grants APP’s motion to strike [50], and Plaintiff’s jury demand is
stricken.
IV.

Conclusion
For the foregoing reasons, the Court denies Defendant’s motion to dismiss [48] and

grants Defendant’s motion to strike jury demand [50]. Plaintiff’s jury demand is stricken.

Dated: May 31, 2011

____________________________________
Robert M. Dow, Jr.
United States District Judge

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