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Sconiers v. First Unum Life Ins.Co., 2011 U.S.Dist.LEXIS 133509 (N.D.Cal. November 18, 2011)(Issues: Equitable Relief; Bad Faith (ERISA))..
The plaintiff, Michele Sconiers, an attorney, was hired in 2006 by Morgan Stanley & Co., Inc. as a banking associate. Previously, she had worked as an attorney for the Skadden, Arps law firm. Less than a year after her hire, Sconiers stopped working due to a variety of symptoms including pain, fever, dizziness, and forgetfulness. Unum, the group insurer, approved the claim; however, a dispute arose over the amount of benefits payable. In addition, although Sconiers never alleged a psychiatric impairment, the insurer characterized the impairment as a somatoform disorder and advised the plaintiff her benefit duration was limited to two years on account of the limitation in the policy applicable to mental and nervous disorders.
Although the court rejected the plaintiff's assertion that the policy in effect in 2006, rather than the 2007 policy applied, the court found a basis for equitable relief and possible reformation of the policy pursuant to 29 U.S.C. § 1132(a)(3) for breach of fiduciary duty. The court pointed out that the complaint alleged the plaintiff was affirmatively advised that the 2006 policy applied; and when she requested a copy of the applicable policy, she was furnished with the 2006 policy. Thus, the court found a claim existed in accordance with Cigna Corp. v. Amara, 131 S.Ct. 1866, 1870-72 (2011). Although the relief was potentially duplicative, the court explained: "Here, plaintiff seeks equitable relief under Section 1132(a)(3) based on a different theory than her claim under Section 1132(a)(1)(B) - namely, that defendants affirmatively misled her as to which policy governed her disability claim." Moreover, the court found that discovery into the plaintiff's communications with defendants regarding her disability claim was warranted. The court also permitted discovery into the circumstances of the plaintiff's request for information since there was a suggestion of stonewalling in providing her with plan documents which would support a claim for penalties under 29 U.S.C. § 1132(c) pursuant to 29 U.S.C. § 1132(a)(1)(A).
Unum also moved for summary judgment on a claim for declaratory and injunctive relief pursuant to California Insurance Code § 10144 which was cited not as the basis for substantive relief but as a relevant rule of decision, the violation of which would demonstrate Unum's abuse of discretion. Because no substantive relief was sought, the court saw no need to address preemption. The court also rejected Unum's argument that the California law was inapplicable because the policy recited that New York law applied. The court pointed to the plaintiff's observation that "California law requires courts to deviate from the explicit policy definition of 'total disability' in the occupational policy context." Hangarter v. Provident Life and Accident Ins. Co., 373 F.3d 998, 1006 (9th Cir. 2004).
The court then turned to a discussion of both the standard of review and the effect of Unum's conflict of interest. Plaintiff clearly got the court's attention by citing evidence of confict which included the market conduct studies and lawsuits finding Unum had engaged in systematic bad faith conduct. Specifically, the court pointed to another case that highlighted Unum's "disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics." See Radford Trust v. First Unum Life Ins. Co. of Am., 321 F. Supp. 2d 226, 247-48 & n.20 (D. Mass. 2004) (collecting citations). The court also cited "round table" meetings with lawyers, doctors, and claims handlers to address the most expensive claims (citing Merrick v. Paul Revere Life Ins. Co., 500 F.3d 1007, 1012 (9th Cir. 2007)). Given the plaintiff's young age of 33 and a high base salary, the court deemed her claim "expensive" and noted it was subjected to the round-table process." Another tactic was imposing the mental illness limitation in order to shorten the duration of claims. The California market conduct investigation and ensuing Settlement Agreement was aimed at curtailing Unum's practice of characterizing physical illnesses as somatoform disorders; and the court questioned the legitimacy of Unum's invocation of the limitation in this case since her symptoms were all physical. Hence, the court concluded that despite Unum's insistence that it had reformed its practices, "the termination of a large claim under the mental-illness exception despite the claimant's denial of mental illness, following round-table review and a somatoform disorder diagnosis by staff physicians, raises suspicion of bias." Hence, the court permitted discovery "into the possibility that Unum evaluated plaintiff's claim in bad faith."