The United States Court of Appeals for the Ninth Circuit upheld the district court's ruling that MetLife, the current insurer, abused its discretion in denying plaintiff Michael Mitchell's long term disability benefits because MetLife was the responsible insurer under the terms of its policy, since its policy contained no exclusion or preclusion of coverage where the date of onset of disability occurred before the effective date of the plan and the employee was covered by the current insurer's policy under at least one of its three definitions of disability.
Starting in 1983, Mitchell worked as a commercial real estate broker at CB Richard Ellis. His job was considered sedentary in nature. In February 2001, Mitchell was first diagnosed with restless leg syndrome after he suffered symptoms of fatigue. Over time his condition grew more severe. In October 2003, Mitchell was diagnosed with major depression, chronic fatigue syndrome, restless leg syndrome, REM-related obstructive sleep apnea syndrome and hemochromatosis. Mitchell continued to work full time, while his condition continued to deteriorate until he could no longer effectively perform his job in March 2004. Mitchell's compensation, based entirely on commission and bonuses, decreased substantially over time, ranging from $179,678 in 2001 to $12,585 in 2004.
CB Richard Ellis provides benefits to its employees under an employee benefit plan governed by ERISA. From January 1, 2000 to December 31, 2003, CB Richard Ellis funded the Plan by purchasing insurance from UNUM. On January 1, 2004, MetLife replaced UNUM as the insurer and administrator of the Plan. MetLife issued a new policy comprised of a Certificate of Insurance and a summary plan description. The district court found that MetLife's policy defines the term disability differently in three places: once in the Certificate of Insurance and twice in the summary plan description.
The Certificate of Insurance defines disabled or disability as: "due to sickness or as a direct result of accidental injury: You are receiving Appropriate Care and Treatment and complying with the requirements of such treatment; and You are unable to earn: during the Elimination period and the next 24 months of Sickness or accidental injury, more than 80% of Your Predisability Earnings at Your Own Occupation from any employer in Your Local Economy; and after such period, more than 80% of your Predisabilty Earnings from any employer in Your Local Economy at any gainful occupation for which You are reasonably qualified taking into account Your training, education and experience."
MetLife's summary plan sets forth two additional definitions of disability. The summary plan's "Plan Benefits" description specifies that a participant is considered "disabled" when determined to be "unable to perform your regular job functions due to sickens, or as a direct result of accidental injury the employee [sic] is receiving appropriate care and treatment and complying with the requirements of such treatment." The summary plan's "Definitions" section defines "disability" as "a condition in which a person is unable to perform the material and substantial duties of his/her regular occupation due to illness or injury."
MetLife's Certificate of Insurance includes language specifying "Rules for When Insurance Takes Effect if You were insured Under the Prior Plan on the Day Before the Replacement Date," which states: "If you are Actively at Work on the day before the Replacement Date, You will become insured for Disability Income Insurance under this certificate on the Replacement Date?." MetLife's policy also contained two differing definitions of "Actively at Work." The Certificate of Insurance defines "Actively at Work" to mean "You are performing all of the usual and customary duties of Your job on a Full-Time basis." The summary plan defines "Actively at Work" to mean "Being on the job as required of an employee or Independent Contractor of CB Richard Ellis."
On April 15, 2004, Mitchell applied for LTD benefits with MetLife. Mitchell completed the appropriate boxes indicating that the first date of treatment for his condition was "10/2003;" that he was "still working;" and that the date his disability began was "10/2003." MetLife denied the claim indicating Mitchell did not meet the definition of "disability" under the Certificate of Insurance definition, because he was capable of performing his work as VP of Sales, classified as sedentary. The denial was based on Mitchell's statement he was "still working." Mitchell appealed and the denial was upheld based on a finding he did not meet the summary plan definition of disability, because an independent physician's review of the medical documentation did not support a finding that Mitchell's condition was severe enough to prevent him from performing his own occupation.
On February 2, 2005, Mitchell sued MetLife and the CB Richard Ellis Long Term Disability Plan. For the first time, in its answer to Mitchell's complaint, MetLife asserted a date of onset coverage defense. MetLife argued it was not required to provide coverage since it was not the provider of LTD benefits at the onset of Mitchell's disability in October 2003 and that Mitchell should have submitted his claim to UNUM. Mitchell thereafter filed an administrative claim with UNUM, which was denied based on insufficient information to support a disability claim and prejudice due to his delay in filing. Mitchell amended his complaint on January 5, 2007 to name UNUM as an additional defendant. UNUM filed a cross-complaint against MetLife for indemnification. MetLife did not file a cross-complaint against UNUM.
Following a bench trial, the district court concluded MetLife's LTD benefits policy included conflicting definitions of disability in its Certificate of Insurance and summary plan descriptions and MetLife had abused its discretion in applying the more limiting summary plan definition to deny Mitchell's claim. The court further found that Mitchell was eligible for LTD benefits under MetLife's definition of disability in the Certificate of Insurance and MetLife had abused its discretion in denying Mitchell's appeal based on lack of objective evidence his medical condition was severe enough to warrant a finding of disability, because this standard was not included in its policy. The district court rejected MetLife's coverage argument and found it could not "disavow that it was the administrator and insurer for Mitchell's claim when it never raised that reason during administrative review." The district court found Mitchell eligible for benefits from October 2003 to September 2005, ordered MetLife to pay Mitchell costs and interest, to consider his claim for continued benefits and awarded attorney's fees to Mitchell. The district court also granted UNUM's request for a declaration that it was not the responsible party. MetLife appealed.
The Ninth Circuit Court of Appeals reviewed de novo the district court's application of the standard of review and the finding that MetLife abused its discretion and held the district court correctly concluded MetLife abused its discretion by denying Mitchell LTD benefits in its administrative review process. The Ninth Circuit affirmed the district court's decision that Mitchell had a "disability" as defined in MetLife's Certificate of Insurance when he submitted his claim. The Ninth Circuit held Mitchell was unable to earn 80% of his predisability earnings during the elimination period and the next 24 months, and was impaired in his capacity to work, even though he was working full-time. MetLife was the plan administrator and funding source for benefits - a structural conflict of interest. The Ninth Circuit viewed the inconsistent bases of denial with a fair amount of skepticism.
The Ninth Circuit reviewed the administrative record to evaluate whether the plan administrator abused its discretion and found nothing in the record to support MetLife's effort to exclude Mitchell from coverage due to his claimed onset date of October 2003. The Ninth Circuit rejected MetLife's reliance on a single line in its policy, "If you become Disabled while insured" and found that MetLife attempted to have this phrase read out of context and without regard to the definition of "disabled" as set forth in the Plan documents. The Ninth Circuit reasoned that in its entirety the sentence states "If You Become Disabled while insured, proof of disability must be sent to Us." The Ninth Circuit read this as a stipulation that a requirement for submitting a claim is that an individual is "disabled" while insured, and rejected an argument Mitchell was only covered if he was "actively at work" on the date the policy was replaced. The Ninth Circuit interpreted this phrase based on the summary plan description to mean "Being on the job as required of an employee or Independent Contractor of CB Richard Ellis" and held Mitchell met the requirements of earning less than 80% of his pre-disability income as specified in the Certificate of Insurance.
The Ninth Circuit held the district court correctly held that MetLife abused its discretion in denying Mitchell LTD benefits. The Ninth Circuit held that MetLife was the responsible insurer under the terms of its policy. Because MetLife failed to raise a compulsory counterclaim requesting that the district court determine the respective rights between UNUM and MetLife, the district court did not err in declining to reach this issue. The district court's judgment, including attorney's fees and costs of suit against MetLife were affirmed in favor of Mitchell.
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