Yarborough v. Prudential Insurance Company of America et al

Filing 54

ORDER denying 15 Motion for Judgment as a Matter of Law; denying 17 Motion for Judgment as a Matter of Law; denying 23 Motion to Strike for the reasons set out in the order. Signed by District Judge Daniel P. Jordan III on August 1, 2012. (SP)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
JACKSON DIVISION
RICHARD F. YARBOROUGH JR.

PLAINTIFF

v.

CIVIL ACTION NO: 3:12cv6-DPJ-FKB

THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA

DEFENDANT

ORDER
This ERISA case is before the Court on Plaintiff’s Motion and Amended Motion for
Partial Judgment as a Matter of Law [15, 17], as well as Plaintiff’s Motion to Strike Prudential’s
Filing of a Protected Settlement Communication [23]. In general, Plaintiff controverts the denial
of long-term disability benefits under an ERISA plan. And although his civil action raises
numerous challenges to that decision, the present motions for judgment focus on only one of
those issues—whether the administrator applied the correct definition of “disabled.” Having
considered the parties’ memoranda and submissions, the Court concludes that all three motions
should be denied.
I.

Facts and Procedural History
Plaintiff Richard F. Yarborough Jr., joined the Baker Donelson law firm as a litigation

shareholder in 2007 and became enrolled in Baker Donelson’s Group Insurance Contract (“the
Plan”) provided by Defendant The Prudential Insurance Company of America. In March 2009,
Yarborough suffered complications following scheduled knee surgery, and he claims the
resulting knee problems rendered him unable to continue his employment as a senior litigator.
On July 31, 2009, Yarborough filed a claim for long-term disability benefits under the
Plan’s LTD policy (“the Policy”). Prudential, as claims administrator, initially denied the claim

in September 2009, but Prudential reconsidered its denial in April 2010 and approved the claim
retroactive to September 2009. Prudential then paid Yarborough LTD benefits through August
2010, when it terminated Yarborough’s benefits based on its conclusion that he did not meet the
Policy’s definition of “disabled.” Specifically, Prudential determined that Yarborough did not
have an impairment “that would prevent him from performing the material and substantial duties
of his regular occupation.” Pl.’s Mot. [17] Ex. 2 (filed under seal at [20-1]), Nov. 10, 2011,
Denial Letter, at Yarborough003314. Yarborough appealed the termination of benefits, and
Prudential upheld its decision on November 10, 2011.
Yarborough filed this lawsuit on January 5, 2012, seeking, among other things, past
benefits he alleges are due under the Policy and a declaratory judgment as to his entitlement to
future benefits. Yarborough moved for partial judgment as a matter of law on February 17, 2012,
arguing that a May 1, 2010, change in the terms of the Policy applied to his claim for benefits and
required Prudential to assess whether he met the revised definition of “disabled.” Yarborough
also moved to strike from Prudential’s response to his motion communications he alleges are
confidential settlement communications. The Court has personal and subject-matter jurisdiction
and is prepared to rule.
II.

Standard
At the outset, the Court must determine whether Yarborough’s Motion and Amended

Motion for Partial Judgment as a Matter of Law are properly characterized as motions under Rule
12(c) or Rule 56. Yarborough never specifies, but he attached 35 exhibits to the amended
motion. Prudential submitted an additional 14 exhibits in response, and Prudential assumed in

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its response that Yarborough’s motions seek partial summary judgment. Def.’s Resp. [22] at 5.
The Court therefore construes the motions as filed under Rule 56.1
Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil
Procedure when evidence reveals no genuine dispute regarding any material fact and that the
moving party is entitled to judgment as a matter of law. The rule “mandates the entry of
summary judgment, after adequate time for discovery and upon motion, against a party who fails
to make a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986).
The party moving for summary judgment “bears the initial responsibility of informing the
district court of the basis for its motion, and identifying those portions of [the record] which it
believes demonstrate the absence of a genuine issue of material fact.” Id. at 323. The
nonmoving party must then “go beyond the pleadings” and “designate ‘specific facts showing
that there is a genuine issue for trial.’” Id. at 324 (citation omitted). In reviewing the evidence,
factual controversies are to be resolved in favor of the nonmovant, “but only when . . . both
parties have submitted evidence of contradictory facts.” Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994). When such contradictory facts exist, the court may “not make credibility
determinations or weigh the evidence.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S.
133, 150 (2000). Conclusory allegations, speculation, unsubstantiated assertions, and legalistic
arguments have never constituted an adequate substitute for specific facts showing a genuine
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That Prudential so construed Yarborough’s filings indicates that it had “a reasonable
opportunity to present all the material that is pertinent to the motion” as required for conversion
of a Rule 12 motion into a summary judgment motion. Fed. R. Civ. P. 12(d).
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issue for trial. TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002); SEC
v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1997); Little, 37 F.3d at 1075.
III.

Analysis
A.

Motion and Amended Motion for Partial Judgment as a Matter of Law

Yarborough seeks a ruling on a threshold legal issue: whether a May 1, 2010,
amendment to the Policy, which contains a revised definition of “disabled,” applies to his claim
for LTD benefits. Yarborough asserts that it does and that Prudential abused its discretion in
relying on the more restrictive definition of “disabled” contained in an earlier version of the
Policy to justify its denial of his claim.
Where an ERISA plan gives the administrator discretionary authority to interpret the plan
documents and determine eligibility for benefits, courts apply an abuse of discretion standard to
the administrator’s interpretation.2 Ellis v. Liberty Life Assur. Co. of Boston, 394 F.3d 262, 269
(5th Cir. 2004). The Court’s review of the administrator’s interpretation begins with the Plan
documents. See Threadgill v. Prudential Sec. Group, Inc., 145 F.3d 286, 292 (5th Cir. 1998)
(“Eligibility for benefits under any ERISA plan is governed in the first instance by the plain
meaning of the plan language.”) (citation omitted). This review occurs under a two-part test. “If
the administrator’s construction is legally sound, then no abuse of discretion occurred and the
inquiry ends.” McCall v. Burlington N./Santa Fe Co., 237 F.3d 506, 512 (5th Cir. 2000). If, on
the other hand, the Court “concludes that the administrator has not given the plan the legally

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Yarborough assumes for purposes of his motion that Prudential had discretion to
interpret the Plan documents and make eligibility determinations. Pl.’s Mem. [16] at 10.
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correct interpretation, the [C]ourt must then determine whether the administrator’s interpretation
constitutes an abuse of discretion.” Id.
In answering the first question, i.e., whether the administrator’s interpretation of
the plan was legally correct, a court must consider: (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.
Gosselink v. Am. Tel. & Tel., Inc., 272 F.3d 722, 726 (5th Cir. 2001). Of these three factors, the
second factor predominates. Id. at 727. “[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 regulations.” Id.
1.

The Plan Language

In this case, the Plan is memorialized in the Group Insurance Contract, effective January
1, 2003, which incorporates by reference a number of Group Insurance Certificates, including the
two versions of the LTD Policy at issue. The LTD Policy in effect at the time Yarborough
injured his knee became effective and a part of the Group Contract on January 1, 2008. Def.’s
Resp. [22] Ex. 4, Jan. 1, 2008 LTD Policy, at D009369. It contains the definition of “disability”
Prudential applied in its decisions on Yarborough’s claim, requiring both an inability “to perform
the material and substantial duties of your regular occupation” and “a 20% or more loss in
your indexed monthly earnings” to establish disability. Id. at D009378. On May 1, 2010, after
Prudential had begun to pay Yarborough benefits under the Policy and before it made its final
decision to cease those payments, a new version of the LTD Policy came into effect, replacing
the previous version under the Group Contract. Def.’s Resp. [22] Ex. 6, May 1, 2010, LTD
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Policy, at D009496. The new version defined disability more broadly, requiring either an
inability “to perform the material and substantial duties of your regular occupation” or “a 20%
or more loss in your monthly earnings” to establish disability. Id. at D009505.3
Whether the administrator correctly applied the more restrictive original definition is the
sole issue raised in Yarborough’s motions, and the Plan documents speak to the effective date of
amendments. The Group Contract states that “it can be amended at any time . . . . But an
amendment will not affect a claim incurred before the date of change.” Def.’s Resp. [22] Ex. 3,
Group Contract, at D009332. As stated, the Group Contract “consists of: (1) the Group
Insurance Certificate(s) listed in the Schedule of Plans” and “(2) all modifications and
endorsements to such Group Insurance Certificates.” Id. Thus, amendments to Group Insurance
Certificates—which is where the 2010 amendment to the “disability” definition is found—“will
not affect a claim incurred before the date of change.” Id. Yarborough incurred and submitted
his claim before the 2010 amendment, and the administrator was correct to apply the earlier
definition. Yarborough never responded to this portion of Prudential’s response.
Prudential alternatively argues that the 2010 amendment includes the following language
that precludes its application to Yarborough’s claim:

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Prudential apparently produced the disputed 2010 amendment for the first time in its
response to the present motion. It then argued that Yarborough is precluded from relying upon
its terms because it was not part of the administrative record. Yarborough rejects this argument
as “mere frippery,” Pl.’s Reply [24] at 8, suggesting that Prudential is charged with knowledge of
its own plan documents. Elsewhere in his Reply, Yarborough argues that this Court is free to
consider evidence “beyond the record that could be considered as relating to ‘interpreting the
plan’ or ‘how the administrator interpreted the plan.’” Id. at 2 (citing Vega v. Nat’l Life Ins.
Servs., Inc., 188 F.3d 287, 299 (5th Cir. 1999) (holding that “when assessing factual questions,
the district court is constrained to the evidence before the plan administrator.”)). The Court will
decide the issue in light of Yarborough’s position that it is ripe for review.
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When Will Changes to Your Coverage Take Effect?
Once your coverage begins, any increased or additional coverage
will take effect on the latest of:
1. the effective date of the change, if you are:
•

in active employment;

•

on a temporary layoff;

•

on leave of absence; or

•

working reduced hours, for reasons other than disability.

2. the date you return to active employment, if you are not in
active employment due to injury or sickness.
Def.’s Resp. [27] Ex. 6, May 1, 2010, LTD Policy at D009502. According to Prudential, the
expanded definition of “disabled” represents “increased or additional coverage,” and because
Yarborough was “not in active employment due to injury or sickness,” the amendment would
take effect only upon his return to active employment.4
This argument begs the question whether Prudential increased or added “coverage” when
it adopted the more generous definition of “disabled.” According to Yarborough, it did not
because “coverage” means the amount payable under the Policy. Thus, the provisions specifying

4

Although Prudential does not rely upon it, the 2008 Policy included similar language:
Once your coverage begins, any increased or additional coverage
will take effect immediately upon the effective date of the change,
if you are in active employment or if you are on a covered layoff or
leave of absence. If you are not in active employment due to injury
or sickness, any increased or additional coverage will begin on the
date you return to active employment. . . .

Def.’s Resp. [22] Ex. 4, Jan. 1, 2008, LTD Policy at D009375.
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when changes to “coverage” take effect apply only to changes in the limits and have no impact
on any other “‘terms’ of the Plan.” Pl.’s Rebuttal [24] at 5. Because the limits never changed,
Yarborough asserts that the May 2010 Policy contained no change to Yarborough’s coverage.
The Court disagrees with Yarborough’s interpretation of the word “coverage.”
Although the Policy never defines the word “coverage,” it consistently uses the term in a
manner that refers to an insured’s entitlement to “benefits” rather than the Policy’s monetary
limits. For example, the Group Contract explains that certificates will be provided to employees
describing the “employee’s coverage under the Group Contract” which includes “to whom
Prudential pays benefits . . . [and] claim rights and requirements.” Def.’s Resp. [22] Ex. 3,
Group Contract at D009332. It also identifies the “covered class” as including “all employees
included in the” listed Covered Classes. Id. at D009335. The incorporated certificates continue
this use of the term “coverage” when they speak of “a line of coverage”; “persons covered under
a coverage”; “a covered class”; employees “eligible for coverage”; when “coverage begins”; the
time “you will be covered”; “the cost of your coverage”; “apply[ing] for coverage”; “cancel[ling]
coverage”; whether “coverage” begins or continues during a temporary absence from work; and
when coverage ends. Def.’s Resp. [22] Ex. 4, Jan. 1, 2008 Policy, at D009373–D009375. In
contrast, the Policy uses the terms “payment,” “benefit,” and “maximum benefit” to describe the
monetary amounts payable to covered employees. Id. at D009369, D009379.
Read in harmony with these provisions, “increased or additional coverage” relates to new
risks undertaken by Prudential pursuant to a Policy amendment. Id. at D009375. See Scottsdale
Ins. Co. v. Knox Park Constr., Inc., 488 F.3d 680, 687 (5th Cir. 2007) (noting distinction
between “the concepts of liability limits and coverage limits”). C.f., Wells v. Gulf Ins. Co., 484
8

F.3d 313, 314 (5th Cir. 2007) (differentiating between an automobile “policy’s liability
limits—that is, the policy’s monetary parameters” and “coverage limits—that is, vehicles and
persons insured, conduct insured against, and the like”); see also The Oxford English Dictionary
(2d ed. 1989) (defining “coverage” as “[t]he aggregate of risks covered by an insurance policy”);
Couch on Insurance § 1:4 (consistently using “coverage” to mean covered risk or loss). Thus,
any change to Yarborough’s entitlement to benefits resulting from a revision to the definition of
“disability” would have been a change in coverage under the Policy. Such a change would not
affect Yarborough’s claim under the Policy’s plain terms.5
2.

Whether Common Law Precludes the Plan Language

According to Yarborough, “‘the controlling plan will be the plan that is in effect at the
time a claim for benefits accrues.’” Pl.’s Resp. [24] at 4 (citing Singleton v. San Jacinto
Methodist Hosp., No. Civ. A. H–02–1396, 2003 WL 22303420 at *2 (S.D. Tex. July 14, 2003)
and other cases). While that general statement appears in some opinions, the cases that explain
the rule demonstrate that it has no application to Yarborough’s claim.
In the cases Yarborough cited, and many others, employees were covered under ERISA
plans when they incurred injury, but the plans were changed to the employees’ detriment by the
time the claims were denied. In McGann v. H & H Music Co., for example, the administrator
essentially gutted the employee’s benefits after the claim was incurred, leading the employee to
argue that benefits vested and could not be reduced. 946 F.2d 401, 405 (5th Cir. 1991). The
Fifth Circuit disagreed, holding that “this is plainly not the law, and ERISA does not require such
5

In any event, Yarborough never rebutted Prudential’s argument that the Group Contract
expressly stated that “an amendment will not affect a claim incurred before the date of change.”
Def.’s Resp. [22] Ex. 3, Group Contract, at D009332.
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‘vesting’ of the right to a continued level of the same medical benefits once those are ever
included in a welfare plan.” Id. It follows that “[e]mployers or other plan sponsors are generally
free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans.”
Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995); see Hargrave v. Commonwealth
Gen. Corp.’s Long Term Disability Plan, 430 F. App’x 256, 261 (5th Cir. 2011) (concluding
amendment to LTD policy that reduced future benefits applied to claim incurred prior to
amendment). Thus, in the cases Yarborough cites, the courts allowed the employers or plan
sponsors to reduce benefits based on plans that were adopted after an injury but before denial,
provided, however, that the plans did not “expressly indicate[] that a right to benefits vest[ed] at
an earlier date.” Singleton, 2003 WL 22303420, at *2. These cases did not ignore the language
of the ERISA plans.
Yarborough makes the converse argument, claiming benefit to a post-injury/pre-denial
amendment that expanded coverage despite Plan language precluding him from that benefit. He
cites no authority for this proposition, and if an employer or plan sponsor may “modify or
discontinue” a welfare plan, it should also be able to dictate to whom plan changes will apply.
Wise v. El Paso Natural Gas Co., 986 F.2d 929, 937 (5th Cir. 1993); see Shane v. Albertson’s
Inc., 504 F.3d 1166, 1168–89 (9th Cir. 2007) (concluding that amended LTD plan did not cover
employee whose injury pre-dated amendment where plan limited applicability of amendment to
injuries occurring after date of amendment).
It is a “well-settled principle that Congress did not intend that ERISA circumscribe
employers’ control over the content of benefits plans they offered to their employees.” McGann,
946 F.2d at 407. The Court therefore concludes that the applicability of the amendment in this
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case is governed by the Plan language and not the final denial date. See Threadgill, 145 F.3d at
292 (“Eligibility for benefits under any ERISA plan is governed in the first instance by the plain
meaning of the plan language.”) (citation omitted).
B.

Motion to Strike

Yarborough has moved to strike “protected settlement communications” Prudential
included in its response to his motions. Specifically, Yarborough objects to the inclusion of two
letters from his attorney to Prudential’s counsel. Def.’s Resp. [22] Ex. 14, Feb. 8, 2012, Letters.
Although the letters were redacted to remove reference to settlement negotiations, Yarborough
claims that attaching them to Defendant’s Response was designed “to weave together a web” of
misdirection that unnecessarily invades the sanctity of settlement negotiations and creates a
chilling effect. Pl.’s Mot. [23] ¶¶ 5–6.
The motion is denied. Yarborough cites no binding authority adopting the privilege he
suggests, and no chilling effect is apparent because settlement communications are not
sacrosanct. Federal Rule of Evidence 408 governs admissibility of “statements made in
compromise negotiations” and prohibits using such evidence for some purposes while permitting
it for others. Thus settlement communications can—under certain circumstances—reach a jury.
Rule 408 also has application under Rule 56, because Rule 56(c)(2) requires non-moving parties
to respond with evidence that can be presented in an admissible form. See also Geiserman v.
MacDonald, 893 F.2d 787, 793 (5th Cir. 1990) (“Material that is inadmissible will not be
considered on a motion for summary judgment . . . .”).
In this case, the two letters were marked “Confidential Settlement Communications,” but
Yarborough has not disputed Prudential’s argument that it redacted all settlement
11

communications from the letters before docketing them. See King v. Univ. Healthcare Sys., L.C.,
645 F.3d 713, 720 (5th Cir. 2011) (trial judge redacted inadmissible settlement communications
from correspondence). Yarborough likewise took no issue with Prudential’s argument that the
non-redacted statements were admissible under Rule 408, and instead argues that the exhibit was
unnecessary to Defendant’s response. The Court likewise questions the documents’ relevance to
the issues presented in Yarborough’s motions for partial judgment and did not base its ruling on
those documents. But it sees no basis for striking them from the record.
IV.

Conclusion
The Court has considered all of the parties’ arguments. Those not addressed would not

change the result. Plaintiff’s Motion for Partial Judgment as a Matter of Law [15], Amended
Motion for Partial Judgment as a Matter of Law [17], and Motion to Strike [23] are denied.
SO ORDERED AND ADJUDGED this the 1st day of August, 2012.
s/ Daniel P. Jordan III
UNITED STATES DISTRICT JUDGE

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