The casenote of the month is from the Disability E-News Alert! a monthly newsletter describing new disability insurance developments. For subscription information, e-mail Mark DeBofsky or visit www.disabilityenewsalert.com .
Feibusch v. Integrated Device Technology Inc. Employee Benefit Plan, 2006 U.S.App.LEXIS 22743 (9th Cir. 9/7/2006)(Issues: Standard of Review; Scope of Review; Construction of Contracts). Feibusch is a case we litigated. In this ruling, the Ninth Circuit Court of Appeals reversed the district court’s ruling in favor of Sun Life and resolved two major issues.
The plaintiff, Toni Feibusch, was a highly skilled technical writer for Integrated Device Technology who earned more than $50,000 per year. After undergoing several shoulder surgeries and trying to return to work after each, she finally stopped working altogether in January 2001 and received total disability payments from Sun Life. Those payments continued until August 2002 when the insurer terminated Feibusch’s benefits. After exhausting pre-suit appeals, Feibusch sued Sun Life in Hawaii where she resides.
The district court found that policy language requiring a claimant to submit proof of disability “satisfactory to Sun Life” triggered a deferential standard of review. The district court also determined that residual part time work capacity precluded Feibusch from collecting benefits; and that the court’s ruling would still favor Sun Life even under a de novo standard of review. The court of appeals rejected both findings.
As to the standard of review, the court determined that the Sun Life policy language “does not unambiguously provide discretion to the plan administrator.” *9. Citing several prior rulings, the court concluded that while “magic words” were not required,
the Sun Life policy language simply does not clearly indicate that Sun Life has discretion to grant or deny benefits. Indeed, the language makes no reference whatsoever to granting or denying benefits, and is included under the policy heading "What is considered proof of claim?" We construe ERISA policy ambiguities in favor of the insured. See Thomas v. Oregon Fruit Products Co., 228 F.3d 991, 994 (9th Cir. 2000). *9-*10.
While the Sun Life language might arguably confer discretion, the court found “it does not unambiguously confer discretion and cannot escape the default of de novo review.” *10. The court also cited approvingly to Kinstler v. First Reliance Standard Life Ins. Co.,181 F.3d 243, 252 (2d Cir. 1999), which held
[T]he phrase "proof satisfactory to [the decision-maker]" is an inadequate way to convey the idea that a plan administrator has discretion. Every plan that is administered requires submission of proof that will "satisfy" the administrator . . . . [T]he administrator's burden to demonstrate insulation from de novo review requires either language stating that the award of benefits is within the discretion of the plan administrator or language that is plainly the functional equivalent of such wording . . . . [C]ourts should require clear language and decline to search in semantic swamps for arguable grants of discretion. *10-*11.
Finally, looking at other cases where discretion has been granted, the court determined that the language in the plans at issue in those cases “involve policy provisions that are far clearer in conferring discretion in plan administrators than the provision at issue in Sun Life's policy.” *11.
Feibusch was also successful in pointing out that the policy provided that because of her level of income, the definition of disability was an “own occupation” definition; moreover, benefits would continue for employees such as herself who earned more than $50,000 per year until:
8. after the first 24 months of Total Disability, the date Sun Life determines the Employee is able to perform on a full-time basis all of the material and substantial duties of any occupation for which he is or becomes reasonably qualified for by education, training or experience, even if the Employee chooses not to work.
The court of appeals concluded that the district court had misapplied that provision in view of substantial evidence showing that Feibusch could, at best, work only on a part time basis. Although other policy provisions appeared to conflict and establish that part-time work capacity could result in a benefit termination, the court noted, "Under well-settled contract principles, specific provisions control over more general terms." Chanv. Society Expeditions, Inc., 123 F.3d 1287, 1296 (9th Cir. 1997). *15-*16. The court explained further:
Under item 1, total disability benefits cease when the employee is no longer totally disabled. Under the plan an employee is totally disabled when she is unable to "perform all of the material and substantial duties of [her] own occupation." Item 6 uses the same exact quoted words except adding the phrase "on a full-time basis." Thus, if item 1 alone can serve as a basis for terminating benefits, item 6 -- the only provision specific to employees earning at least $ 50,000 -- would serve no purpose whatsoever. "[W]e must interpret the contract in a manner that gives full meaning and effect to all of the contract's provisions." In re Crystal Properties, Ltd., 268 F.3d 743, 748 (9th Cir. 2001). Finally, we note that an ERISA policy ambiguity must be interpreted in favor of the employee. See Patterson v. Hughes Aircraft Co., 11 F.3d 948, 950 (9th Cir. 1993). Therefore, item 6 governs and in order to terminate total disability benefits Sun Life must show that Feibusch was able to perform on a full-time basis all of the material and substantial duties of her own occupation. *15-*16.
Consequently, the court remanded the case to the trial court and suggested that it may be “advisable for the court at trial to consider additional evidence and perhaps oral testimony as is permitted in ERISA cases” to resolve conflicts in the evidence (citations omitted).
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