Salisbury v. The Prudential Life Insurance Company of America
Filing
39
MEMORANDUM & ORDER terminating 33 Motion to Set The Standard of Review As Arbitrary and Capricious. The Court concludes that the Plan at issue expressly vests discretion in the plan administrator to decide disability claims. Nonetheless, the Cour t concludes that the de novo standard applies to the review of the denial of Salisbury's claim because Prudential violated the Department of Labor's claims-procedure regulation by seeking an extension of time without identifying adequate &q uot;special circumstances." Finally, because discovery is generally limited to the administrative record even when the standard of review is de novo, the Court denies Salisbury's request for plenary discovery. By March 17, 2017 the parties shall submit a joint proposed schedule for the completion of discovery and for summary judgment motions. This order resolves Docket Number 33. (Signed by Judge Alison J. Nathan on 2/28/2017) (cla)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Katherine Salisbury,
USDCSDNY
DCCUMENT
ELECTRONICALLY FILED
DOC#:
rrs· 2· s2011
~~~~~~~~~-
DATE FILED:
Plaintiff,
15-cv-9799 (AJN)
-vPrudential Insurance Company of America,
MEMORANDUM &
ORDER
Defendant.
ALISON J. NATHAN, District Judge:
Plaintiff Katherine Salisbury brings this action under the Employee Retirement Income
Security Act ("ERISA") seeking long-term disability benefits under a plan administered by the
Prudential Insurance Company of America ("Prudential"). The parties dispute the standard of
review that applies in this case and the scope of permissible discovery. Before the Court is
Defendant Prudential's "motion to set the standard ofreview as arbitrary and capricious." Dkt
No. 33. For the reasons provided below, the Court concludes that de nova review shall apply.
Additionally, the Court denies Salisbury's request for plenary discovery.
I.
Background
Salisbury was employed by Jefferies Group, Inc. Compl.
~
6 (Dkt No. 4); Mot. at 1 (Dkt
No. 34). Jefferies Group, Inc. issued a "Group Benefit Plan" under ERISA. Ex. A. at 5 (Dkt No.
34-1 ). The Plan named Prudential as the claims administrator for disability benefits. Ex. A at 2;
Ex.Bat 5, 28 (Dkt No. 34-2).
Salisbury brought a claim for long-term disability benefits under this plan. On March 23,
2015, Prudential denied Salisbury's claim for long-term disability benefits. Ex. C (Dkt No. 343). On October 15, 2015, Salisbury filed an appeal of this decision with Prudential. Id.
According to the relevant Department of Labor regulations, Prudential then had 45 days to
render a decision. 29 C.F.R. §§ 2560.503-l(i)(l), 2560.503-l(i)(3). Before the end of this 45
day period, Prudential provided written notice to Salisbury stating that Prudential was extending
the time to make an appellate determination. Ex. D (Dkt No. 34-4); Hack Deel. Ex. E (Dkt No.
36-5). The sole justification for the extension was that additional time was "required to allow for
review of the information in Ms. Salisbury's file which remains under physician and vocational
review." Ex. D; Hack Deel. Ex. E. On December 16, 2015, Salisbury filed the current lawsuit in
this Court challenging Prudential's denial of her long-term disability benefits claim. Dkt No. 1.
On January 13, 2016, Prudential issued its appellate decision affirming the denial of Salisbury's
claim. Ex. E (Dkt No. 34-5).
During the litigation of this case, the parties expressed differing views regarding the
appropriate standard of review and the proper scope of discovery. The Court now resolves these
issues.
II.
Discussion
Prudential's motion asks the Court to both (1) set the standard ofreview as "arbitrary and
capricious" and (2) reject Salisbury's request for extensive discovery. As explained below,
because Prudential violated a Labor Department regulation governing the processing of
employee claims under ERISA, the Court concludes that the standard of review is de nova.
Additionally, the Court concludes that Salisbury's request for plenary discovery is improper, but
notes that Salisbury may file a motion requesting specific pieces of discovery.
A.
The Standard of Review in ERISA Denial of Benefits Cases
The main question before the Court is what standard of review should apply to
Prudential's denial of Salisbury's claim for long-term disability benefits. "[A] denial of benefits
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challenged under [29 U.S.C.] § 1132(a)(l)(B) is to be reviewed under a de novo standard unless
the benefit plan gives the administrator or fiduciary discretionary authority to determine
eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 115 (1989). If the plan expressly vests discretion in the administrator, then
the deferential "arbitrary and capricious" standard applies. Kinstler v. First Reliance Standard
L?fe Ins. Co., 181 F.3d 243, 249 (2d Cir. 1999). "The plan administrator bears the burden of
proving that the arbitrary and capricious standard ofreview applies." Id.
Prudential contends that the arbitrary and capricious standard applies in this case because
the Plan under which Salisbury brings her claim expressly vests discretion in the plan
administrator. Mot. at 2. Salisbury responds with two reasons why de novo review should apply
instead. First, Salisbury argues that the plan does not contain language vesting discretion in the
plan administrator. Opp. at 4-10 (Dkt No. 35). Second, Salisbury argues that Prudential failed to
comply with the Department of Labor's regulation governing the processing of her claim. Opp.
at 1-3. For the reasons provided below, the Comi agrees with Salisbury on the second ground
and thus sets the standard of review as de novo.
B.
The Plan Expressly Vests Discretion in the Plan Administrator
The arbitrary and capricious standard ofreview, as opposed to the de novo standard,
applies when a "plan vests the administrator with 'discretionary authority to determine eligibility
for benefits or to construe the terms of the plan."' Frommert v. Conkright, 738 F.3d 522, 527
(2d Cir. 2013) (quoting Nichols v. Prudential Ins. Co. ofAm., 406 F.3d 98, 108 (2d Cir. 2005)).
Salisbury spends a significant amount of her brief arguing that de novo review applies because
the Summary Plan Description ("SPD"), and not the plan itself, is the only document containing
language vesting discretion in the plan administrator. Opp. at 4-1 O; see CIGNA Corp. v. Amara,
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563 U.S. 421, 438 (2011) (holding that the summary plan description is not part of the plan and
thus cannot create legal rights). Salisbury ignores, however, language within the plan itself that
vests discretion in the administrator. Specifically, the plan at issue in this case states that
"[b ]enefits under this Plan will be paid only if the Plan Administrator (or its designee) decides in
his discretion that the applicant is entitled to them." Ex. A. at 7. The Second Circuit has held
that this language vests the administrator with discretionary authority, thus triggering application
of the arbitrary and capricious standard. Roganti v. Metro. Life Ins. Co., 786 F.3d 201, 204-05 &
n.2 (2d Cir. 2015). The Court therefore rejects Salisbury's first argument as to why the standard
ofreview should be de nova.
C.
De Novo Review Applies Because Prudential Did Not Strictly Comply with
the Department of Labor's Claims-Procedure Regulation
The conclusion that the plan at issue in this case expressly vests discretion in the plan
administrator does not end the Court's inquiry. Salisbury contends that, even if the plan
expressly vests discretion with the administrator, de nova review nonetheless applies because
Prudential's processing of her claim violated a Department of Labor regulation. Mot. at 1-4.
"Under Sections 503 and 505 of the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C. §§ 1133, 1135, Congress empowered the Department of Labor to issue
rules and regulations governing claims procedures for employee benefit plans." Halo v. Yale
Health Plan, 819 F.3d 42, 45 (2d Cir. 2016). Pursuant to this authorization, the Department of
Labor promulgated a claims-procedure regulation at 29 C.F.R. § 2560.503-1. For purposes of
this motion, the Court is concerned only with those aspects of this regulation that apply to the
processing of a claimant's appeal of the denial of benefits.
Once an employee's claim has been denied, the employee-claimant must be given at least
180 days to appeal that decision to the plan administrator. 29 C.F.R. §§ 2560.503-l(b),
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2560.503-1 (h)(3)(i). An appeal to the plan administrator is required before a lawsuit can be
filed in federal court. See Greifenberger v. Hartford L(fe Ins. Co., 131 F. App'x 756, 758 (2d
Cir. 2005) (noting that "the exhaustion of administrative review procedures [is] a jurisdictional
prerequisite to any suit to recover ERISA benefits"). Once an appeal is filed, the plan
administrator has 45 days to render a decision. 29 C.F.R. § 2560.503-l(i)(3)(i) (when read in
conjunction with§ 2560.503-l(i)(l)(i)). The plan administrator may request a single 45 day
extension, but only if "the plan administrator determines that special circumstances (such as the
need to hold a hearing, if the plan's procedures provide for a hearing) require an extension of
time for processing the claim." 29 C.F.R. § 2560.503-l(i)(l)(i). Before taking an extension, the
plan administrator must provide written notice to the claimant "indicat[ing] the special
circumstances requiring an extension of time and the date by which the plan expects to render the
determination on review." Id.
Salisbury appealed her adverse benefits determination on October 15, 2015. Ex. C.
Prudential then had 45 days (until November 29, 2015) to render an appellate decision. Hack
Deel. Ex. A; 29 C.F.R. §§ 2560.503-l(i)(l), 2560.503-l(i)(3). On November 24, 2015,
Prudential provided written notice to Salisbury stating that it was seeking an extension of time.
In the notice, the sole justification for the extension was that Prudential needed additional time
"to allow for review of the information in Ms. Salisbury's file which remains under physician
and vocational review." Ex. D; Hack Deel. Ex. E. Prudential represented that it would render a
decision by January 13, 2016. Id. Salisbury filed the instant federal court action on December
16, 2015, before Prudential rendered a decision, on the ground that Prudential's request for an
extension was improper. See Dkt No. 1, 4. Prudential ultimately did issue a decision denying
Salisbury's appeal, on January 13, 2016. Exs. D & E. Salisbury contends that Prudential
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violated the claims-procedure regulation by failing to provide sufficient "special circumstances"
to justify an extension of time to decide her appeal. Opp. at 2-3.
In their briefs, both parties spend a significant amount of time discussing whether the
doctrine of "substantial compliance" applies in this case. Mot. at 7; Opp at. 3; Reply at 2-3 (Dkt
No. 37). According to Prudential, even if it technically violated the Department of Labor
regulation by seeking an extension without providing sufficient justification, de novo review
should not apply because the company at least "substantially complied" with the claimsprocedure regulation, as it "obtained the extension in good faith" and ultimately rendered a
decision within the maximum allowable time of 90 days. Reply at 2.
Neither party cites Halo, the recent Second Circuit opinion resolving this issue. Halo v.
Yale Health Plan, 819 F.3d 42, 45 (2d Cir. 2016). In that case, a prose plaintiff challenged the
denial of her claims for health benefits under an ERISA plan. Id. at 46. She argued that de novo
review should apply because the Plan's denials of her claims were untimely and failed to contain
the explanatory information required by the claims-procedure regulation. Id. The district court
concluded that the Plan at least "substantially complied" with the claim-procedure regulation and
therefore declined to apply de novo review. Id. at 47. The Second Circuit reversed on the
ground that the district court applied the wrong legal standard. Id. at 61. The Court concluded
that "the substantial compliance doctrine ... is flatly inconsistent" with the Department of
Labor's claim-procedure regulation. Id. at 56. Accordingly, the Court held that a plan
administrator "must strictly adhere to the regulation to obtain the more deferential arbitrary and
capricious standard ofreview." Id. The Comi then remanded for the district court to apply this
legal standard of strict compliance. Id. at 61. In short, Halo held that if the plan administrator
does not strictly comply with the Department of Labor's regulation governing the processing of
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an employee's claim, then de novo review applies to the denial of benefits, regardless of whether
the plan vests discretion with the administrator.
The question before the Court therefore becomes whether Prudential violated the claimsprocedure regulation when it requested an extension of time to decide Salisbury's appeal. This
issue in turn requires the Court to construe the term "special circumstances." A plan
administrator may seek an extension of time only if "the plan administrator determines that
special circumstances ... require an extension of time for processing the claim" and the
administrator provides a notice that describes these "special circumstances." 29 C.F.R. §
2560.503-1 (i)(l )(i). Unfortunately, neither party cites any cases providing insight into the
meaning of"special circumstances" under 29 C.F.R. § 2560.503-1, and the Court's independent
research revealed no applicable precedent. See Mot. at 5-7; Opp. at 1-4. 1 The only legal
authority the Court could find that sheds any light on the meaning of "special circumstances" is
the Department of Labor's preamble, which the Second Circuit has stated "is entitled to
substantial deference." Halo, 819 F.3d at 53.
According to the Labor Department, "the time periods for decisionmaking are generally
maximum periods, not automatic entitlements." See ERIS A Rules and Regulations for
Administration and Enforcement; Claims Procedures, 65 Fed. Reg. 70,246, 70,250, 2000 WL
1723740 (Nov. 21, 2000). The Department explained that "it may be unreasonable" to seek an
extension if the "claim presents no difficulty whatsoever." Id. Additionally, the Department
explained that "an extension may be imposed only for reasons beyond the control of the plan."
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Prudential cites Wedge v. Shawmut Design and Constr. Grp. Long Term Disability Ins. Plan, No. 12 Civ.
5645(KPF), 2013 WL 4860157 (S.D.N .Y. Sept. I 0, 2013), to support its argument that it did not violate the claimsprocedure regulation. Mot. at 5-6. In Wedge, the Court rejected the argument that "any transgression ... from
ERISA 's requirements resulted in wholesale forfeiture of a plan administrator's discretion." Id. at* I 0. This case
was decided before Halo, which held that a plan administrator must "strictly adhere" to the claims-procedure
regulation. 819 F.3d at 56.
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Id. The Department further suggested that simply having too much work does not constitute an
acceptable justification, writing that "delays caused by cyclical or seasonal fluctuations in claims
volume [are not] matters beyond the control of the plan that would justify an extension." Id.
The Department also concluded that a plan administrator's failure to provide a sufficient "special
circumstance" would constitute a violation of the claims-procedure regulation. Id. at 70,248 n.8
("[I]n in some cases, delaying a decision until the end of the applicable maximum period may be
unreasonable under the circumstances and thus a violation of the procedural standards.").
These statements in the Labor Department's preamble suggest that Prudential violated the
claims-procedure regulation by seeking an extension without "special circumstances." The only
rationale for the extension provided in the company's written notice was that Prudential needed
additional time "to allow for review of the information in Ms. Salisbury's file which remains
under physician and vocational review." Ex. D; Hack Deel. Ex. E. But virtually every appeal of
the denial of a disability benefits claim will require "physician and vocational review," and thus
this cannot constitute a valid "special circumstance." Additionally, the written notice of
extension did not identify any unusual difficulties associated with Salisbury's claim. See 65 Fed.
Reg. at 70,250 (noting that it would be unreasonable to seek an extension if the claim
"present[ ed] no difficulty whatsoever"). To find that Prudential's justification for seeking an
extension in this case constituted a "special circumstance" would mean that virtually any request
for an extension would be permissible, an outcome the Department of Labor has expressly
rejected. See id. ("[T]he time periods for decisionmaking are generally maximum periods, not
automatic entitlements.").
In its reply, Prudential represents that Salisbury's file was "voluminous," containing
"4,623 pages of medical records and several days of surveillance." Reply at 1-2. The Court,
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however, cannot consider this information when assessing the adequacy of Prudential's request
for an extension, as this information was not included in the written notice provided to Salisbury.
Ex. D; Hack Deel. Ex. E; see 29 C.F.R. § 2560.503-1 (i)(l )(i) (requiring a written notice of
extension to "indicate the special circumstances" warranting an extension). Additionally, the
Court is skeptical that the Labor Department would find this a sufficient reason for an extension.
See 65 Fed.Reg. at 70,250 (noting that "fluctuations in claims volume" cannot justify a request
for an extension).
Having concluded that a violation of the claims-procedure regulation occurred, the Court
must next to turn to the question of whether an exception applies. Halo laid out a limited
exception to the general rule that de novo review applies when a plan administrator has failed to
comply with the claims-procedure regulation. Specifically, the Court in Halo held that a plan
administrator could avoid the application of de novo review if "the plan has otherwise
established procedures in full conformity with the regulation and can show that its failure to
comply with the claims-procedure regulation in the processing of a particular claim was
inadvertent and harmless." 819 F.3d at 58. The Second Circuit provided examples of what types
of violations could be considered inadvertent and harmless, such as when "human error caus[ es] .
. . a plan to respond in 73 hours when the regulation requires that it do so in 72, or in 16 days
when the regulation specifies 15." Id. at 57 (internal citations omitted). The Court warned that,
in order "[t]o prevent the exception from swallowing the rule," violations of the claimsprocedure regulation "should not be tolerated lightly." Id. at 57.
The Court concludes that this exception does not apply. In Halo, the Court wrote that the
Plan bears the burden of proving that the "inadvertent and harmless" exception applies. Id. at 58.
Because Prudential does not cite Halo in either its original motion or reply brief and instead
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argues that the doctrine of substantial compliance applies (in direct contradiction to Halo's
holding), Prudential does not make any arguments as to why this exception should apply and
therefore has not met this burden. See Mot. at 5-7; Reply at 1-3. 2 Even ifthe Comi were to
examine the exception on its merits, it would conclude that it does not apply. While the violation
of 29 C.F.R. § 2560.503-1 discussed herein may have been harmless given that Prudential
ultimately rendered a decision on Salisbury's appeal within the maximum allowable 90-days, the
Court cannot say that Prudential's violation was "inadvertent." Prudential purposefully sought
the extension and provided the inadequate grounds for seeking an extension.
The Comi recognizes that this conclusion, that Prudential's improper request for an
appellate extension triggers application of de nova review, may appear harsh, especially given
that Prudential ultimately issued a determination on Salisbury's claim within 90 days. However,
Halo requires "strict" compliance with the claims-procedure regulation. 819 F.3d at 56. And the
Department of Labor has expressly recognized that some requests for an extension will violate
the claims-procedure regulation. 65 Fed. Reg. at 70,248 n.8 ("[I]n in some cases, delaying a
decision until the end of the applicable maximum period may be unreasonable under the
circumstances and thus a violation of the procedural standards."). Prudential's request for an
extension in this case identified no special circumstances. The Court is therefore bound to
conclude that Prudential violated claims-procedure regulation and that this triggers de nova
review.
D.
Salisbury's Request for Plenary Discovery Is Denied
At the Court's April 15, 2016 Initial Pretrial Conference, the parties represented that they
disputed the scope of allowable discovery. In its motion to set the standard ofreview, Prudential
2
The Court notes that Halo was published months before Prudential filed its motion to set the standard of
review as arbitrary and capricious. Dkt Nos. 33, 37.
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briefly mentions discovery, arguing that the Court should reject Salisbury's request for
"extensive merits discovery." Mot. at 4-5. The Court agrees with Prudential's view of the
permissible scope of discovery.
Even when the de nova standard of review applies, discovery in cases appealing the
denial of benefits under an ERISA plan is generally limited to the administrative record. See
Halo, 819 F.3d at 60 ("[W]hen reviewing claim denials, whether under the arbitrary and
capricious or de nova standards of review, district courts typically limit their review to the
administrative record before the plan at the time it denied the claim."); Locher v. Unum L(fe Ins.
Co. ofAm., 389 F.3d 288, 293-94 (2d Cir. 2004); DeFelice v. Am. Intern 'l. Life Assurance Co. of
NY, 112 F. 3d 61, 66-67 (2d. Cir. 1997); see also Tretola v. First Unum Life Ins. Co., No. 13
Civ. 231 (PAE), 2014 WL 2815586, at *2 (S.D.N.Y. June 23, 2014). A few exceptions to this
general rule exist. For example, "a district court may consider evidence outside the
administrative record upon a de nova review of issues of plan interpretation." Locher, 389 F.3d
at 293 (citing Masella v. Blue Cross & Blue Shield of Conn., Inc., 936 F.2d 98, 103-05 (2d Cir.
1991)). A court may also "consider evidence outside the administrative record upon a de novo
review offactual issues" if there is "good cause" for doing so. Id. at 293-94, 299; see also Halo,
819 F.3d at 60. When seeking discovery beyond the administrative record, the plaintiff should
specifically identify the type of discovery she seeks. See, e.g., Liyan He v. Cigna Life Ins. Co. of
New York, 304 F.R.D. 186, 187 (S.D.N. Y. 2015) (plaintiff sought three depositions on
specifically identified topics); Burgio v. Prudential Life Ins. Co. ofAm., 253 F.R.D. 219, 222
(E.D.N.Y. 2008) (plaintiff sought, among other things, to depose "one of the people on the
Committee responsible for the final claim decision" and subpoenas for identified doctors).
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These authorities make it clear that Salisbury's request for plenary discovery must be
rejected. However, because Salisbury's brief focuses on the standard ofreview issue rather than
discovery, she does not make any arguments as to whether an exception to the rule limiting
discovery applies or whether there is "good cause" for particular types of discovery to be
exchanged. Accordingly, while the Court denies Salisbury's request for plenary discovery, it
will allow Salisbury to seek limited discovery if "good cause" exists. The parties are encouraged
to work through any disputes as to scope. In the absence of agreement, furthe~ assistance of the
Court may be sought.
III.
Conclusion
The Comi concludes that the Plan at issue expressly vests discretion in the plan
administrator to decide disability claims. Nonetheless, the Court concludes that the de novo
standard applies to the review of the denial of Salisbury's claim because Prudential violated the
Department of Labor's claims-procedure regulation by seeking an extension of time without
identifying adequate "special circumstances." Finally, because discovery is generally limited to
the administrative record even when the standard ofreview is de novo, the Court denies
Salisbury's request for plenary discovery.
By March 17, 2017 the parties shall submit a joint proposed schedule for the completion
of discovery and for summary judgment motions.
This order resolves Docket Number 33.
l
SO ORDERED.
Dated:
tt~ i l , 2017
New York, New York
\._,,/ 1\usoN J. NATHAN
United States District Judge
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