Surratt v. UNUM Life Insurance Company of America
ORDER & REASONS: before the Court is pla Gwen Surratt's 18 Motion for Judgment as a Matter of Law wherein she seeks an increased award of disability payments from Defendant Unum Life Insurance Company of America ("Unum") and recovery of attorney's fees, costs, and prejudgment interest; for the reasons stated, IT IS HEREBY ORDERED that Surratt's 18 motion for judgment as a matter of law is GRANTED IN PART and DENIED IN PART; IT IS FURTHER ORDERED that Unum recalculate Surratt's long-term disability benefits to include the perpetuity payments she received in 2010, retroactive to the date of her eligibility; IT IS FURTHER ORDERED that the Court will DENY WITHOUT PREJUDICE Surratt's request for attorney 39;s fees, costs, and prejudgment interest to allow for additional briefing; IT IS FURTHER ORDERED that Surratt file a memorandum no later than September 12, 2013, on the issues of whether she is entitled to recover attorney's fees, costs, and p rejudgment interest, and if so, how much she is entitled to recover. IT IS FURTHER ORDERED that Unum file any response to Surratt's memorandum no later than September 26, 2013. IT IS FURTHER ORDERED that the matter will be set for submission on October 9, 2013, at 10 a.m. Signed by Judge Nannette Jolivette Brown on 8/29/2013. (rll, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CASE NO. 11-2943
UNUM LIFE INSURANCE COMPANY OF
ORDER AND REASONS
Before the Court is Plaintiff Gwen Surratt's ("Surratt") Motion for Judgment as a Matter of
Law,1 wherein she seeks an increased award of disability payments from Defendant Unum Life
Insurance Company of America ("Unum") and recovery of attorney's fees, costs, and prejudgment
interest. Having considered the parties' filings, the administrative record, and the applicable law, for
the reasons discussed below, the Court will grant Surratt's motion in part and deny it in part without
prejudice to allow for further briefing.
A. Procedural Background
Unum approved Surratt's claim for long-term disability benefits pursuant to a plan provided
by Surratt's employer on June 2, 2011, with an effective eligibility period to begin on June 7, 2011.2
Surratt filed a formal appeal to Unum on June 24, 2011, contesting the amount of the benefit that
Unum determined Surratt would receive .3 Unum denied the appeal on August 9, 2011.4 Surratt again
Rec. Doc. 18.
Rec. Doc. 21 (hereinafter "Administrative Record" or "AR") at p. 266. Pursuant to an order of this Court,
the Administrative Record was filed under seal. See Rec. Doc. 20.
Id. at p. 315.
Id. at pp. 346-49.
appealed to Unum on the grounds that it had miscalculated her benefits.5 Unum denied this appeal
on October 31, 2011, and advised her of her right to file a lawsuit.6
Surratt timely filed suit in this Court on November 29, 2011, alleging that Unum's conduct
violated the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et
seq.7 On October 30, 2012, the Court ordered the parties to file cross motions for final judgment
based upon the administrative record.8 Surratt filed a motion for judgment as a matter of law on
February 21, 2013.9 Unum responded in opposition on March 18, 2013,10 and Surratt filed a reply
on March 28, 2013.11
B. Factual Background
Surratt began working for Humana, Inc., ("Humana") on September 12, 2005.12 She worked
as a sales representative primarily responsible for selling Humana health insurance policies, but her
health began to deteriorate after a 2006 diagnosis of lupus.13 By November 15, 2010, her doctor
noted that Surratt had failed to respond to the medications she had been prescribed and that "at the
present time, she is unable to continue with gainful employment due to her persistent and vexing
Id. at 381-83.
Id. at 674-76.
Rec. Doc. 1.
Rec. Doc. 12.
Rec. Doc. 18.
Rec. Doc. 27.
Rec. Doc. 35.
AR at p. 5.
Rec. Doc. 18-1 at p. 2; AR at p. 120.
symptoms."14 Surratt left her job effective December 7, 2010,15 and soon thereafter applied for and
received short-term disability benefits under a plan Humana had provided.16 These benefits expired
on June 6, 2011.17 Prior to the expiration of these benefits, Surratt applied to Unum for coverage
under the long-term disability plan. It is undisputed that Unum served as the plan's insurer, and that
the long-term disability plan granted Unum "discretionary authority to make benefit determinations"
under the plan's terms.18
II. Parties' Arguments
Surratt's Arguments in Support
A Plain Reading of the Policy Includes Surratt's "Perpeuity Payments" as
Surratt first argues that she is entitled to judgment as a matter of law because Unum's
benefits determination clearly contradicts the plain language of the long-term disability benefits
policy. As Surratt notes, and as Unum does not dispute, the long-term disability benefits plan
calculated her monthly benefit as "66.6667%" of her "monthly earnings," less any "deductible
sources of income."19 The policy twice defines the term "monthly earnings." First, the policy states,
under the Benefit Information section:
AR at p. 65.
Id. at p. 5.
Rec. Doc. 18-1 at p. 2.
AR at p. 20.
Id. at pp. 157, 162.
AR at pp. 138-39.
'Monthly Earnings' means your total income in effect just prior to your date of
disability. It is before taxes and any deductions made for pre-tax contributions to a
qualified deferred compensation plan, Section 125 plan, or flexible spending account.
It includes your gross targeted sales incentive, divided by 12. It does not include
income received from commissions, bonuses, overtime pay, shift differential, and
any other extra compensation or income received from sources other than your
Next, the policy's Glossary provides that
MONTHLY EARNINGS means your gross monthly income from your Employer
as defined in the plan.21
Surratt argues that Unum incorrectly calculated her long-term benefits by including only her
hourly wage and "targeted sales incentive" as her "monthly earnings" and by leaving out her
"perpetuity payments."22 As her counsel explained to Unum, the "perpetuity payments" Surratt
received were monthly payments reflecting $5 for each customer to whom Surratt had sold a
Humana insurance policy who remained Humana customers.23 In all, these perpetuity payments
amounted to more than two-thirds of Surratt's earnings, and Surratt argues that these payments thus
were part of her total monthly income. While Unum told her that the "perpetuity payments"
constituted "other extra compensation" and therefore not part of her "monthly earnings," Surratt
argues that a plain reading of the policy compels a different result because the exclusion of "extra
compensation" refers only to "extra compensation" from non-employers and because her "perpetuity
payments" fall under the definition of "monthly income."24
Id. at p. 139.
Id. p. 153.
Rec. Doc. 18-1 at pp. 7-8.
AR at p. 382.
Rec. Doc. 18-1 at p. 8.
Surratt notes that a court must interpret ERISA plan language "in [its] ordinary and popular
sense as would a reasonable person of average intelligence and experience."25 She contends that,
when viewing the policy terms in this light, the perpetuity payments are not excluded from the
definition of "monthly earnings," and therefore should be encompassed in her total benefits
Moreover, because the definition of the term "monthly earnings" begins with a participant's
"total monthly income," Surratt contends that her perpetuity payments also clearly should have been
included in the calculation formula used to determine her benefits. Surratt avers that Unum knew
what the plain language of the policy meant, but nonetheless incorrectly denied her benefits. As
evidence, Surratt attacks Unum's letters of denial issued to Surratt, claiming that they misquote the
actual policy language and manipulate the grammar and language to fit with Unum's interpretation.27
Sources Outside the Policy Support Surratt's Interpretation
Surratt also supports her interpretation of the policy by alleging several facts outside the
language of policy itself. First, she notes that because the perpetuity payments constituted more than
two-thirds of her regular monthly income, they must be part of her total monthly income and not
considered "other extra compensation or income received from a source other than her employer[,]"
which is excluded from the benefit calculation.28
Second, Surratt also argues that a Summary Plan Description ("SPED") provided by Humana
Id. at p. 8 (citing Crowell v. Shell Oil Co., 541 F.3d 295 (5th Cir. 2008)).
Rec. Doc. 18-1 at p. 13.
Id. at p. 8.
to explain the long-term policy supports her interpretation of the policy.29 In particular, she notes
that the SPED provides a chart that lists some examples of disability benefit amounts in relation to
hypothetical employees' monthly salaries.30 She additionally highlights that the SPED explains that
sales associates' "monthly base salary equals base pay plus target sales incentive."31 Surratt contends
that her perpetuity payments constituted part of her "base pay." Likewise, she argues that
information on Humana's website described the long-term disability benefit as being based on her
"regular monthly earnings."32 Surratt concludes that, because she received her perpetuity payments
each month, they constitute regular monthly earnings.33
Third, Surratt also seeks support from the asserted fact that her perpetuity payments were
calculated and used in the formula that determined her short-term disability benefits.34 She asserts
that the amount she received as "roughly $8,000 per month[,]" but there is no record of such
payments in the administrative record.35 Fourth, Surratt notes that her employer had notified her that
she would continue to receive her perpetuity payments while receiving short-term disability
benefits.36 She also cites an e-mail her manager sent to sales associates, alleging that it likewise
establishes that perpetuity payments generally were considered by Humana and its employees, if not
Id. at pp. 9-10.
Id. at pp. 9-10.
Id. at p. 10.
Id. at p. 11 (citing AR at pp. 404-05).
Id. at p. 12.
Id. at pp. 2, 12.
Id. at p. 12. (citing AR at p. 401).
by Unum, to be "regular amounts she received each month, no matter what[.]"37
Unum Misquoted the Policy Provision in Both Denial Letters.
Surratt notes that the language Unum used in its denial letters is conspicuously different from
that set forth in the long-term disability benefits plan.38 She claims that "Unum slips in a serial
comma that is not present in the provision of its policy."39 Surratt argues that this "maneuver"
establishes that Unum knew Surratt's interpretation was accurate. She also concludes that the altered
policy language shows that "Unum is deceptively making efforts to deny this claim, which is an
abuse of discretionary authority."40
The Perpetuity Payments Could not be Considered "Extra Compensation."
Surratt next argues that even if the policy does exclude "other extra compensation" that she
received from Humana, her employer, her perpetuity payments do not fall under the definition of
"extra compensation" and are therefore not excluded under the policy.41 She contends that a source
of income that provides more than two-thirds of an employee's earnings, such as her perpetuity
payments, "could hardly be construed as 'any other extra compensation."42
Id. at p. 13,
Id. (citing AR 348, 675).
Id. at pp. 13-14.
Alternatively, the Policy is Ambiguous and Should be Interpreted in Surratt's
Surratt argues in the alternative that if the policy's plain language does not clearly support
her interpretation, the language is ambiguous. If so, she argues, Unum's interpretation exceeded the
bounds of its authority because it abused its discretion.43 Here, she argues that her position is
supported by the doctrine of contra proferentem, which construes any ambiguities against the drafter
of contractual language, which in this case is Unum.44
Unum's Inherent Conflict of Interest Should Weigh Heavily in the Abuse of
Finally, citing the United States Supreme Court's Metropolitan Life Insurance Company v.
Glenn (hereinafter "MetLife"),45 Surratt argues that Unum's conflict of interest, in operating as both
the administrator and insurer of the plan, supports finding an abuse of discretion.46 In consideration
of MetLife, Surratt contends that Unum's "history of denying valid claims" justifies giving the
conflict of interest here considerable weight in determining whether Unum abused its discretion.47
For the foregoing reasons, Surratt argues that she is entitled to a recalculation of her benefits
that include her "perpetuity payments" as part of her "monthly earnings." Moreover, she seeks to
recover attorney's fees, costs, and prejudgment interest.
Id. at pp. 14-15.
554 U.S. 105 (2008).
Rec. Doc. 18-1 at p. 16-17.
B. Unum's Arguments in Opposition
1. Surratt's Benefits Under Her Short-Term Disability Plan are Irrelevant.
Unum asserts that the amount that Surratt recovered in short-term benefits is irrelevant to the
long-term policy at issue in this action.48 It claims that this is so because Unum was not involved in
calculating the benefits owed under the short-term policy, but rather Humana determined that
amount.49 Unum further seeks to expand the record on this point by introducing an affidavit from
a Unum official stating that Unum (1) does not calculate short-term disability benefit amounts; (2)
does not know the benefit amounts paid to short-term disability plan claimants; and (3) does not
issue the actual short-term disability payments.50 Likewise, Unum asserts that, as separate policies
with independent provisions, it is possible that the short-term policy allowed for additional benefits
that the long-term policy did not.51
Surratt's Position Regarding Her Short-Term Benefits is Inconsistent and Based
Upon Statements Taken out of Context.
Unum accuses Surratt of inconsistently claiming that she should be receiving her perpetuity
payments separately and in addition to her long-term disability benefits and that the perpetuity
payments should be included as part of her benefits determination.52 Moreover, Unum asserts that
Surratt has selectively quoted from Humana's communications to her regarding her perpetuity
payments and that the communications actually do not establish any connection between the
Rec. Doc. 27 at pp. 2-5.
Id. at pp. 2-3.
Id. at pp. 1-2.
Id. at pp. 4-5. The administrative record does not contain evidence detailing what Surratt received in
Id. at p. 5.
"perpetuity payments" and sales employees' entitlements under the long-term disability policy.53
Unum's Interpretation of the Plain was Within Its Authority and Did Not
Constitute an Abuse of Discretion.
Unum argues that it did not abuse its discretion in interpreting the long-term disability policy
to exclude the "perpetuity payments" from the definition of "monthly earnings."54 First, Unum
asserts that it properly exercised its interpretive discretion granted under the policy, because even
assuming Surratt's reading of the policy is correct, Unum's interpretation is consistent with the
policy's plain meaning and thus reasonable.55 Second, Unum argues that the administrative record
lacks any evidence that its structural conflict of interest influenced its interpretation of the policy
here. To this end, Unum seeks to introduce a letter that is not part of the administrative record, to
establish that it has successfully enacted certain procedural safeguards pursuant to a regulatory
settlement agreement with most of the states and the U.S. Department of Labor.56
C. Surratt's Reply to Unum's Opposition
In reply, Surratt responds by arguing that Unum's interpretation is not legally correct because
it does not constitute a fair reading of the plain meaning of the policy's language and because her
own interpretation would not subject the long-term benefits plan to substantial unanticipated costs.57
To the first point, Surratt argues that Unum's cited cases all featured different policy language than
Id. at pp. 6-7.
Id. at pp. 8-12.
Id. at p. 8.
Id. at p. 11. The Court notes that a copy of the regulatory settlement agreement itself is in the record. See
AR at pp. 384-397.
Rec. Doc. 35 at pp. 2-6.
what is at issue here.58 She then argues that the "unanticipated-costs factor" under ERISA law should
not play a significant role in this analysis, under the theory that the factor is appropriate for pension
plans, but not disability plans.59 She also argues that, even if the factor does apply, it should not
apply in Unum's favor in this case. Surratt asserts that there is no evidence in the record to indicate,
as Unum argues, that Unum based the policy premiums only on Surratt's hourly wage and targeted
sales incentives.60 Moreover, she faults Unum for failing to explain this supposed basis for its
decision until Unum's final letter of denial.61 Surratt argues that this last-minute notice deprived her
of meaningful review required by ERISA, and thus constitutes an abuse of discretion.62
III. Law and Analysis
Standard of Review
Reviewing an ERISA plan administrator's determination of benefits generally entails a two-
step inquiry. First, a court "must determine the legally correct interpretation of the plan" and whether
the administrator gave the plan a legally correct reading.63 If the administrator's interpretation was
legally incorrect, the court must next ask whether the administrator's decision constituted an abuse
of discretion.64 This latter determination turns generally on the balance of three factors: "(1) the
Id. at pp. 2-5.
Id. at p. 5.
Id. at p. 6.
Gosselink v. Am. Tel. & Tel., Inc., 272 F.3d 722, 726 (5th Cir. 2001).
Id. This test applies only in cases, such as the one here, where the administrator has the authority to
interpret the plan and participants' eligibility for benefits. Id.
internal consistency of the plan under the administrator's interpretation, (2) any relevant regulations
formulated by the appropriate administrative agencies, and (3) the factual background of the
determination and any inferences of lack of good faith."65
Legally Correct Interpretation of the Policy
Whether Unum's interpretation of the policy is legally correct also involves balancing several
factors: "(1) whether the administrator has given the plan a uniform construction, (2) whether the
interpretation is consistent with a fair reading of the plan, and (3) any unanticipated costs resulting
from different interpretations of the plan."66 When interpreting an ERISA plan, the Court must "give
its language the ordinary and generally accepted meaning."67 Moreover, if a plan's terms remain
ambiguous after applying the ordinary principles of interpretation, this Court must "apply the rule
of contra proferentem and construe the terms strictly in favor of the insured."68 The parties agree that
the record lacks information regarding whether Unum's construction of the policy has been
consistent. Thus, the Court need not address that factor.
Fair Reading of the Policy's Terms
The policy here provides that Surratt's benefits would be calculated as a percentage of her
"monthly earnings."69 Thus, the Court must determine the legally correct interpretation of the term
"monthly earnings" as used in the plan. Under the Benefit Information section, the policy states:
Koehler, 683 F.3d at 187 (citation omitted).
High v. E-Systems, Inc., 459 F.3d 573, 578-79 (5th Cir. 2006).
AR at pp. 138-39.
'Monthly Earnings' means your total income in effect just prior to your date
of disability. It is before taxes and any deductions made for pre-tax
contributions to a qualified deferred compensation plan, Section 125 plan, or
flexible spending account. It includes your gross targeted sales incentive,
divided by 12. It does not include income received from commissions,
bonuses, overtime pay, shift differential, and any other extra compensation
or income received from sources other than your Employer.70
Additionally, the policy's Glossary provides:
MONTHLY EARNINGS means your gross monthly income from your
Employer as defined in the plan.71
Unum denied Surratt's claim for increased benefits reflecting her "perpetuity payments" as part of
her "monthly earnings," on the ground that the perpetuity payments constituted "other
compensation," which are expressly excluded from the formula.72
Surratt asserts that Unum's interpretation of the policy is legally incorrect because the plain
reading of the policy does not exclude her "perpetuity payments." Her reading of the policy is that
if those payments are not expressly excluded by the provision because the exclusion of "other extra
compensation" applies only to non-employer sources. Unum reads the language differently,
effectively arguing that the provision excludes "other extra compensation" from both employer and
non-employer sources. Moreover, Unum asserts that a plain reading of the policy establishes that
"perpetuity payments" are never included in the definition of "monthly earnings" in the first place.
"[W]hether the administrator's interpretation is consistent with a fair reading of the plan"
is the most important factor to consider when determining whether the interpretation was legally
Id. at p. 139.
Id. p. 153.
Id. at pp. 347.
correct.73 On this issue, the Court must look to "the plain meaning of the plan language" and
interpret its terms in their "ordinary and popular sense as would a person of average intelligence and
Exclusion of "Perpetuity Payments" from "Monthly Earnings"
The policy provision features a list of excluded sources of income. When Unum drafted the
policy, it inserted a serial comma into this provision before the phrase "and any other extra
compensation or income from sources other than your Employer." The placement of that comma
indicates that the following qualifier "from sources other than your Employer" refers both to "extra
compensation" and "income." Otherwise, Unum's choice of using both of the conjunctions "and" and
"or" in the sentence would make no sense. Unum suggests that the lack of a comma before "or" and
before "income" is a stylistic choice of no consequence. However, Unum expressly used the serial
comma in a preceding sentence, even though doing so was not necessary to avoid confusion:
"['Monthly earnings'] is before taxes and any deductions made for pre-tax contributions to a qualified
deferred compensation plan, Section 125 plan, or flexible spending account."75 Thus, under Unum's
reading, the drafter chose to insert the serial comma where it was not necessary, but then, just two
sentences later, chose both to omit it while simultaneously choosing to confuse policy readers by
using two coordinating conjunctions.
In support of its argument that this provision does expressly exclude Surratt's perpetuity
payments from "monthly earnings," Unum cites to Morrison v. Unum Life Insurance Company of
Gosselink, 272 F.3d at 727.
Crowell v. Shell Oil Co., 541 F.3d 295, 314 (5th Cir. 2008).
AR at p. 139.
America, a decision from the Eastern District of Michigan regarding almost exactly the same
provision that is in dispute here.76 The relevant provision in Morrison defined the term "annual
earnings" not to include "income received from commissions, bonuses, overtime pay, any other extra
compensation or income received from sources other than your employer."77 The district court
rejected the plaintiff's theory that the provision's lack of a serial comma before the "or" meant that
"sources other than your employer" modified both "extra compensation" and "income."78
The Morrison court noted that Unum's reading of that sentence "represents a natural and
sensible interpretation."79 The provision in Morrison, however, is materially different than the one
at issue here. Unum's policy in Morrison did not contain the "and" that is included here before the
phrase "any other extra compensation." Thus, Morrison, which is nevertheless not binding on this
court, actually supports Surratt's reading of her policy. The same distinction applies for Bullock v.
USF Group Benefits Plan80 and Gingold v. Unum Life Insurance Company of America,81 the other
cases Unum cites in support of its strained reading of the policy in this case.
Unum's cited cases establish that it has applied different grammatical tools and word choices
Rec. Doc. 27 at p. 9 (citing Morrison v. Unum Life Ins. Co. of Am., 730 F.Supp. 2d 699 (E.D. Mich.
Morrison, 730 F.Supp. 2d at 707.
Id. at 709.
No. 06-0182, 2008 WL 2965724, at *1 (E.D. Tenn. July 30, 2008) (construing policy provision excluding
" . . . overtime pay, any other extra compensation, or income received from sources other than your Employer.").
Gingold v. Unum Life Ins. Co. of Am., 74 F. App'x. 660, 661 (7th Cir. 2003).
to different policies to achieve different results.82 In particular, the cases support the proposition that
Unum has written policies in a manner that unambiguously excludes from the definition of "monthly
earnings" any "extra compensation" provided by the beneficiary's employer. Here, Unum chose not
to draft Surratt's policy in a similar manner. Instead, Unum drafted a provision wholly different than
the ones at issue in Morrison, Bullock, and Gingold. Therefore, Unum expressly provided that the
"extra compensation" provision in this case excluded such compensation deriving only from nonemployers. Because Surratt's perpetuity payments came from Humana, her employer, they are not
excluded from the definition of "monthly earnings."
Inclusion of "Perpetuity Payments" as "Monthly Earnings"
Even though the policy does not exclude "perpetuity payments" from the definition of
"monthly earnings," the Court must still determine whether the legally correct interpretation of the
policy includes them within the definition. The policy defines the term "monthly earnings" as
including employees' "total income" or "gross monthly income."83 Thus, the question of whether
"perpetuity payments" are part of Surratt's "monthly earnings" turns largely on the meaning of
"income." The policy does not define "income." The Court therefore will accept and apply the
common understanding of this term employed by the Fifth Circuit in another ERISA case: a "gain
or recurrent benefit usually measured in money."84 As applied to Surratt's policy, therefore, this
broad definition of "income" must include all recurrent payments Surratt received that are not
The Court also notes Unum's construction of the similar provision at issue in a 2006 case before the
Eighth Circuit. See Riddell v. Unum Life Ins. Co. of Am., 457 F.3d 861, 862 (8th Cir. 2006) (" . . . differential, any
other extra compensation, or income received from sources other than your Employer.").
AR at pp. 139, 153.
See Musmeci v. Schwegmann Giant Super Markets, 332 F.3d 339, 345 (5th Cir. 2003) (citing Lukhard v.
Reed, 481 U.S. 368, 374 (1987) (citing Webster's Third International Dictionary 1143 (1976)).
otherwise expressly excluded by the policy. Moreover, even if the term "income" is ambiguous, the
ambiguity must be construed against Unum's interpretation because Unum drafted the policy.85
Because it is not disputed that Surratt received her "perpetuity payments" on a recurring basis,86 they
constitute "income" as defined by the policy's plain language. As such, and as discussed above, the
payments are not expressly excluded, the only legally correct interpretation of the policy requires
that the payments must be included in the benefits calculation.
Unum's reliance on Keszenheimer v. Reliance Standard Life Insurance to assert that the
"perpetuity payments" here are presumptively excluded by the policy is unavailing. In
Keszenheimer, the Fifth Circuit construed a policy that defined "Covered Monthly Earnings" in
order to determine whether the claimant was entitled to have his benefits take into account the
claimant's per diem payments and car allowance.87 The policy defined "Covered Monthly Earnings"
as "the Insured's monthly salary . . . on the day just before the date of Total Disability."88 The policy
specifically excluded "overtime pay, bonuses or any other special compensation" from the definition
of "Covered Monthly Earnings," and it specifically included "commissions."89
Surratt's policy does not use the term "salary" as the starting point to determine "monthly
earnings." It uses the far broader term "income." Accordingly, the plain reading of the policy
indicates that the plan presumptively included "perpetuity payments" into the definition of "monthly
See High, 459 F.3d at 578-79 ("Only when the plan terms remain ambiguous after applying ordinary
principles of contract interpretation does this court apply the rule of contra proferentem and construe the terms
strictly in favor of the insured.").
Specifically, Surratt received these payments every month.
402 F.3d 504, 506 (5th Cir. 2005).
Id. (emphasis added).
earnings." Because the plain reading of the policy also clearly establishes that the perpetuity
payments were not excluded, Unum's interpretation of the policy was not consistent with a fair
reading. Therefore, this "most important" factor in the correctness of Unum's interpretation weighs
in Surratt's favor.
Unanticipated Costs of Competing Interpretations
Here, the Court must determine "whether either of the interpretations would give rise to
substantial unanticipated costs" to the plan.90 "If a given interpretation would result in such costs,
that interpretation is less likely to be legally correct."91 This issue requires "an inquiry into the plain
reading of the plan language and whether a proposed alternate reading would result in costs
unanticipated under the plain meaning."92 In other words, the most relevant inquiry into this factor
"is not whether [Unum] subjectively anticipated costs but whether they should have objectively
anticipated costs" that would arise from the policy's plain language.93
The policy’s plain language indicates that sales employees’ perpetuity payments, because
they fall under the broad definition of the word "income," are included in the term “monthly
earnings.” It also indicates that the perpetuity payments are not expressly excluded by any other
provision. Thus, the most relevant inquiry on this factor weighs in Surratt’s favor because Unum
objectively should have anticipated that result.
Crowell, 541 F.3d at 316.
Id. at 317.
Unum cites Marshall v. Hartford Life & Accident Insurance Company, from another section
of this court, for the proposition that the reading Surratt prefers would lead to unanticipated costs
because “Unum explained that Humana . . . did not collect premiums to include ‘perpetuity
payments’ within that definition.”94 In Marshall, there was evidence in the record indicating how
the policy premiums were calculated.95 In particular, the premiums in that case were calculated
“based on the employee's monthly earnings as reported to [the plan administrator and insurer] by
the employee's employer.”96
Unum argues that Surratt’s employer did not collect premiums with the expectation that
“perpetuity payments” fell under the definition of “monthly earnings.” Unum stated in its final
denial letter to Surratt that her employer had "paid premiums on the Gross Targeted Sales
Incentive" and that her employer "did not pay premium[s] on any other source of income Ms.
Surratt received."97 Unum raised this ground for denial only in its last letter of denial. This lastminute addition to Unum's reasons for denial should not be considered in this analysis because
Unum did not give Surratt the required "adequate notice" for its reasoning and the record is not clear
as to how the premiums were calculated.98
Rec. Doc. 19-1 at p. 20 (citing No. 11-0010, 2011 WL 4073165 (E.D. La. Sept. 13, 2011) (Africk, J.)).
The "unanticipated costs" prong of the Court's inquiry was more comprehensively briefed in Unum's cross-motion
for judgment as a matter of law, Rec. Doc. 19, and Surratt's opposition to Unum's motion, Rec. Doc. 25, and
therefore the Court addresses those arguments here.
See 2011 WL 4073165, at *7.
AR at p. 675.
See 29 U.S.C. § 1133(1) (providing that all plans must "provide adequate notice in writing . . . setting
forth the specific reasons for such denial"); see also Robinson v. Aetna Life Ins. Co., 443 F.3d 389, 393 (5th Cir.
2006) (finding noncompliance with section 1133 when plan administrator provided new justification for its denial);
Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 974 (9th Cir. 2006) (citing Robinson) ("When an administrator
tacks on a new reason for denying benefits in a final decision, thereby precluding the plan participant from
Unum also points to a document Surratt received from her employer, Humana.99 That
document advised employees of the "guidelines" of the long-term disability plan. In particular,
Humana informed its employees that their long-term benefits would be "determined by his/her
monthly base salary in effect on the day before his/her disability began."100 It continues: "[f]or sales
associates, monthly base salary equals base pay plus targeted sales incentive."101 Despite Unum's
contention, there is no reason to believe that "base pay" does not include Surratt's hourly wage and
perpetuity payments, for the same reason that the perpetuity payments fall under the term "income."
Unum would argue that "base pay" means only Surratt's hourly wage, but the record on that point
is ambiguous, at best. Moreover, when compared to the clear language of the actual policy, Unum
cannot establish that it should not have anticipated sales employees' perpetuity payments to be
included in the term "monthly earnings." Accordingly, this factor also favors finding that Unum’s
interpretation was legally incorrect.
Ambiguity and Contra Proferentem
As detailed above, the Court finds that the policy language was clear that “perpetuity
payments” were part of a sales employees’ “monthly earnings” for the purposes of benefits
determination. However, even if the policy were ambiguous on this point, Unum’s interpretation
would fail because ambiguities must be construed against the drafter of the policy.102 Unum argues
that the Court should not apply the doctrine of contra proferentem because it is inconsistent with
responding to that rationale for denial at the administrative level, the administrator violates ERISA's procedures.").
Rec. Doc. 33 at p. 8 (citing AR at p. 465); see supra note 87 and accompanying text.
AR at p. 465.
See High, 459 F.3d at 578-79 (5th Cir. 2006).
the Supreme Court's decisions in Firestone Tire and Rubber Company v. Bruch103 and MetLife.104
Those cases, however, do not restrict the applicability of the doctrine because neither
considered the question of whether ambiguous terms should be construed against the drafter of the
policy. The Supreme Court held in Firestone that challenges to a denial of ERISA benefits will be
reviewed under a de novo standard unless the plan gives the administrator authority to determine
eligibility for benefits or to construe the terms of the plan, in which case the abuse-of-discretion
standard applies.105 Likewise, that question was not at issue in MetLife, which held that an
administrator's conflict of interest could not transform the standard of review but instead should only
serve as a factor in the abuse-of-discretion analysis.
Meanwhile, the Fifth Circuit has long held that the doctrine of contra proferentem applies
in ERISA cases when a policy term is ambiguous.106 It has also expressly rejected the type of
arguments that Unum now raises in cases after Firestone, a decision this Court is bound to follow.107
Despite clear case law to the contrary, Unum argues that the Fifth Circuit has rejected the rule. In
particular, Unum cites Jimenez,108 High v. E-Systems, Inc.,109 and Smith v. Life Insurance Company
489 U.S. 101 (1989).
554 U.S. 105 (2008).
489 U.S. at 115.
See, e.g., Todd v. AIG Life Ins. Co., 47 F.3d 1448, 1451-52 (5th Cir. 1995) (holding that application of
contra proferentem in ERISA cases "comports with this court's holdings . . . "); Rhorer v. Raytheon Eng'rs &
Constructors, Inc., 181 F.3d 634, 642 (5th Cir. 1999), abrogated on other grounds by CIGNA Corp. v. Amara, 131
S.Ct. 1866 (2011), ("We reject Raytheon's contention that we cannot apply the rule of contra proferentem in light of
. . . Firestone.").
See Rhorer, 181 F.3d at 642.
486 F. App'x 398 (5th Cir. 2012).
459 F.3d 573 (5th Cir. 2006).
of North America110 for the proposition that the plan administrator vested with authority to interpret
plan language has wide interpretive discretion to construe ambiguities in the plan.
As the Fifth Circuit set forth in Wegner v. Standard Insurance Company, the doctrine of
contra proferentem applies when a court is interpreting whether the plan administrator's
interpretation is legally correct.111 The courts must employ this interpretative tool to determine the
legal question of what the policy means in the first instance.112 Unum's cited cases each align with
this reading, because all of them rejected the application of the rule only at the abuse-of-discretion
stage.113 Here, consistent with Fifth Circuit precedent, the Court is applying the doctrine only at the
first step to determine whether Unum's interpretation of the policy is legally correct.
Therefore, any ambiguous language must be construed in Surratt's favor when determining
the correct legal interpretation of the policy's terms. Accordingly, even if the policy were ambiguous
as to whether "perpetuity payments" are both included in the definition of "monthly earnings" and
not expressly excluded, Unum's self-serving interpretation cannot be legally correct.
Abuse of Discretion by Unum
Even though the Court finds that Unum's interpretation was legally incorrect, it still may not
upset Unum's determination unless Unum abused its discretion. This inquiry raises another threepart balancing test that considers the internal consistency of the plan under the administrator's
459 F. App'x 480 (5th Cir. 2012).
129 F.3d 814, 818 (5th Cir. 1997) (applying doctrine in de novo review of plan where administrator did
not have authority to interpret policy provisions).
Rhorer, 181 F.3d at 642 ("[T]his Court uses a unique two-step approach to apply the abuse of discretion
standard, and contra proferentem may properly be used under the first step.").
See, e.g., Smith, 459 F. App'x at 484 (noting that contra proferentem is inapplicable "when reviewing an
administrator's interpretation of plan terms for an abuse of discretion").
interpretation, any relevant regulations, the factual background of the determination and any
inferences of lack of good faith.114 Moreover, where the plan administrator is also the plan's insurer,
as Unum is here, a court "must take that conflict into consideration" as well.115 Finally, and most
important here, “[i]f an administrator interprets an ERISA plan in a manner that directly contradicts
the plain meaning of the plan language, the administrator has abused his discretion even if there is
neither evidence of bad faith nor of a violation of any relevant administrative regulations.”116
As discussed above, Unum interpreted the policy "in a manner that directly contradicts the
plain meaning of the plan language[.]"117 That interpretation is by itself enough to find that Unum
abused its discretion. The Court finds, however, that additional evidence in the record supports this
determination. In particular, the factors involving the factual background of this case and Unum’s
structural conflict of interest weigh in favor of finding that Unum abused its discretion in calculating
Unum's alteration of the policy language in its denial letters to Surratt also suggests that
Unum knew both what the policy clearly stated and what Unum wanted it to state. As is clear, the
policy itself states that "monthly earnings" does not include ". . . shift differential, and any other
extra compensation or income received from sources other than your employer."118 When Unum
explained its calculation methodology to Surratt in its denial letters, Unum deleted the "and" and
Crowell, 541 F.3d at 312 (citing MetLife, 554 U.S. at 112).
LifeCare Mgmt. Servs., LLC v. Ins. Mgmt. Adm'rs, Inc., 703 F.3d 835, 841-42 (5th Cir. 2013).
AR at p. 139.
added a comma before the "or."119 Even if the alterations to the policy language Unum made in its
denial letters do not provide any evidence of bad faith, the changes at least suggest that Unum was
aware of what the plain language of the policy actually stated and had an understanding of the
significance of its syntax and punctuation.
Additionally, as noted above, Unum "tack[ed] on a new reason for denying benefits in [its]
final decision."120 Such an action does not comply with the relevant statutory and regulatory
requirements, because Unum's reference to the premiums that Humana paid to cover the policy as
a reason for denying Surratt's claim "has never been reviewed at the administrative level."121
"[ERISA] requires an administrator to provide review of the specific ground for an adverse benefits
decision,"122 and Surratt was denied the opportunity that the regulations require.123
Finally, the Court also must consider Unum's inherent conflict of interest. The importance
of this factor will vary depending on whether "circumstances suggest a higher likelihood that [the
conflict] affected the benefits decision" and less important where the administrator "has taken
active steps to reduce potential bias and to promote accuracy."124
Surratt points to Unum's alleged history as a biased administrator, citing a Ninth Circuit case
and a law review article in support of her assertion that the company has a "history of denying valid
AR at pp. 348, 675.
Abatie, 458 F.3d at 974.
See Robinson, 443 F.3d at 393.
Id. (citing 29 U.S.C. § 1133).
See 20 C.F.R. § 2560.503-1(g)(1), (h)(2) (setting forth manner and content of notice of decision and
claimant's right to appeal adverse determinations).
MetLife, 554 U.S. at 117.
claims."125 Unum asserts that there is nothing in the record to suggest that its conflict influenced how
it calculated Surratt's benefits.126 Moreover, Unum cites to several post-MetLife cases in which
district courts have noted that since the implementation of new claims procedures by Unum, its
history of claims practices by itself does not warrant extra consideration of Unum's conflict of
interest in any given case.127 In light of those cases and the copy of the regulatory settlement
agreement Unum entered with almost all of the states and the U.S. Department of Labor,128 and in
light of the lack of evidence that the conflict influenced Unum's decision, the Court determines that
Unum's conflict of interest here is "less important" that it might be in other cases.
Even so, Unum's conflict of interest cannot be completely overlooked, especially in light of
Unum's self-serving, and incorrect, interpretation of the policy's plain language. In any event, "any
one factor will act as a tiebreaker when the other factors are closely balanced, [with] the degree of
closeness necessary depending upon the tiebreaking factor's inherent or case-specific importance."129
Whatever degree of weight Unum's conflict of interest should be accorded, the Court notes that the
other factors lean significantly in favor of finding an abuse of discretion. Therefore, the Court needs
no "tiebreaker" here. Accordingly, because Unum's interpretation of the policy directly contradicted
its clear language, and because Unum did not comply with its regulatory requirements when it
asserted a new reason for its determination in a final denial letter, Unum's determination of Surratt's
Rec. Doc. 18-1 at p. 16 (citing Saffon v. Wells Fargo & Co. Long Term Disability Plan, 511 F.3d 1206
(9th Cir. 2008); John H. Langbein, Trust Law as Regulatory Law: The UNUM/Provident Scandal and Judicial
Review of Benefit Denials Under Erisa, 101 Nw. U. L. Rev. 1315 (2007)).
Rec. Doc. 27 at p. 11.
Id. at 13 (citations omitted).
AR at pp. 384-397.
MetLife, 554 U.S. at 117.
long-term disability benefits constituted an abuse of discretion, and Surratt is entitled to a
recalculation of her long-term disability benefits to include her perpetuity payments.
V. Fees, Costs and Interest
Surratt also seeks attorney's fees, costs of suit, and prejudgment interest. Surratt briefly
addressed these claims in her motion for judgment as a matter of law, but she has not provided or
detailed any accounting of her attorney's fees and costs, nor does she state a final figure that she
believes she is entitled to recover.130 Unum's filings do not at all address the propriety of granting
such relief. Accordingly, the Court will grant in part Surratt's motion for judgment as a matter of law
and order that she receive increased disability benefits that include the "perpetuity payments" she
received in 2010 as part of her "monthly earnings." However, as additional briefing would be
necessary to determine whether Surratt is entitled to recover attorney's fees, costs, and prejudgment
interest, and if so, how much she is entitled to recover,131 the Court will deny the motion without
prejudice on this issue and order both parties to file briefs addressing these remaining questions.
For the foregoing reasons,
IT IS HEREBY ORDERED that Surratt's motion for judgment as a matter of law132 is
GRANTED IN PART and DENIED IN PART;
IT IS FURTHER ORDERED that Unum recalculate Surratt's long-term disability benefits
to include the perpetuity payments she received in 2010, retroactive to the date of her eligibility;
Rec. Doc. 18-1 at pp. 17-21.
See, e.g., Schully v. Cont'l Cas. Co., 634 F.Supp. 2d 663, 687-88 (E.D. La. 2009) (Fallon, J.) (granting
attorney's fees in ERISA claim, ordering additional filings regarding accounting of fees).
Rec. Doc. 18.
IT IS FURTHER ORDERED that the Court will DENY WITHOUT PREJUDICE
Surratt's request for attorney's fees, costs, and prejudgment interest to allow for additional briefing;
IT IS FURTHER ORDERED that Surratt file a memorandum no later than September 12,
2013, on the issues of whether she is entitled to recover attorney's fees, costs, and prejudgment
interest, and if so, how much she is entitled to recover.
IT IS FURTHER ORDERED that Unum file any response to Surratt's memorandum no
later than September 26, 2013.
IT IS FURTHER ORDERED that the matter will be set for submission on October 9, 2013,
at 10 a.m.
NEW ORLEANS, LOUISIANA, this
day of August, 2013.
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE
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