The outcome of Employee Retirement Income Security Act cases often turns on how courts interpret the meaning of specific benefit plan terms.

The recently decided case of Stein v. Paul Revere Life Insurance Company, issued by the U.S. District Court for the Eastern District of Pennsylvania on March 16, illustrates what happens when plan terms are unclear and can have different meanings.[1]

The case involved a disability benefits claim brought by Eric Stein, an interventional radiologist, who asserted that he was unable to work due to a spinal impairment. Although the insurance company approved Stein’s claim, it found his disability was due to “sickness,” which limited his benefit eligibility to age 65.

If, however, he had been found disabled due to an “injury,” he could receive lifetime benefits. The policy defined “injury” as an “accidental bodily injury sustained after the Date of issue and while Your Policy is in force,” and “sickness” as “sickness or disease other than a Pre-existing Condition which causes loss commencing while Your Policy is in force.”

Stein’s initial submitted claim form did claim that his disability was due to an injury, but he and his treating doctor subsequently maintained that the disability was related to repetitive stress from having to wear a lead apron and other heavy protective gear in order to protect himself from radiation while performing interventional radiologic procedures.

In analyzing the issue, the court began its discussion by pointing out that “claims for benefits based on the terms of an ERISA plan are contractual in nature and are governed by federal common law contract principles.”[2]

Those principles incorporate the common law of contracts to determine the parties’ intent. Thus, in ascertaining the meaning of the relevant benefit provisions, the court pronounced that if the contractual terms were ambiguous, an interpretation favoring the policyholder was required under a rule of contract interpretation known as contra proferentem.

Applying that principle, the issue came down to whether a repetitive stress injury was an “injury” under the policy.

In resolving that question, the court relied heavily on a 2021 U.S. District Court for the District of Minnesota ruling in Chapman v. Unum Life Insurance Company, a case involving an endodontist who claimed that he developed degenerative arthritis in his hands due to repetitive trauma sustained during the course of his work.[3]

Chapman, in turn, relied on a seminal 1990 U.S. Court of Appeals for the First Circuit case involving the word “accident” — Wickman v. Northwestern National Insurance Co.[4]

Wickman, which was also decided under ERISA, involved accidental death insurance and held that a determination as to whether an occurrence was due to an “accident” depends on the reasonableness of the insured’s expectations and “whether a reasonable person, with background and characteristics similar to the insured, would have viewed the injury as highly likely to occur as a result of the insured’s intentional conduct.”[5]

Applying the Wickman analysis, the Pennsylvania federal court first considered “whether Stein expected an injury similar to what he experienced,” observing that the record lacked any evidence that he would have expected to develop degenerative spinal impairments from practicing intervention radiology.

The court further explained that the medical community has only recently come to understand the existence of a relationship between wearing heavy protective gear while performing interventional radiology procedures and the subsequent development of degenerative impairments of the spine. Thus, it is reasonable to conclude that Stein would not have expected to become impaired.

That conclusion was not enough to win the day for Stein, though. The court next had to find that his condition was an “injury.”

Turning to state law for guidance, the court found that the weight of the evidence supported a finding that Stein’s condition resulted from repetitive stress injuries and was therefore an “injury” under the policy.

This ruling illustrates two important ERISA principles: First, contractual language matters, and ambiguous language is interpreted in a manner that favors the policyholder, even if the insurer’s interpretation is also reasonable.

The second principle is that the ERISA standard of review applied by the court is critical.

In this case, the court applied the de novo standard of adjudication, which permitted the court to utilize the contra proferentem rule.

However, if the arbitrary and capricious standard of review had applied,[6] many courts have ruled that plan administrators have the discretion to interpret ambiguous plan terms so long as their interpretation is reasonable.[7]

Those rulings appear to be in conflict with the U.S. Supreme Court’s 2008 decision in Metropolitan Life Insurance Co. v. Glenn, though.[8]

Glenn recognized that when the same entity both funds the benefits at issue and renders claim determinations, there is an inherent structural conflict of interest since “every dollar provided in benefits is a dollar spent by … the employer; and every dollar saved … is a dollar in [the employer’s] pocket.”[9]

The Supreme Court admonished in its Glenn ruling that lower courts are required to take such conflicts into consideration when they adjudicate benefits claims and that factors pointing to the influence of a conflict of interest on the claim determination should be used as a “tiebreaker.”[10]

Thus, when an ERISA plan administrator adopts a self-serving interpretation of an ambiguous plan term when a contrary interpretation is just as, if not more, reasonable, what could be more indicative of the need for a tiebreaker than the contra proferentem doctrine?

The doctrine has been described in just such terms in several cases.[11]

However, in Clemons v. Norton Healthcare Inc., the U.S. Court of Appeals for the Sixth Circuit suggested in 2018 that only if the plan administrator deliberately drafted ambiguous language would there be cause to construe the ambiguity against it.[12]

The court explained that in such circumstances:

The equitable impulse to construe the Plan against the drafter comes from the administrator’s malfeasance, not from the Plan’s language. To the extent that we would “temper” arbitrary-and-capricious review by construing language against the administrator, we would do so only to take account for this kind of misbehavior.

But that statement is pure dictum and was offered by the court without any citation or other support.

It also seems contrary to the contra proferentem principle, as well as ERISA’s imposition of a fiduciary duty of loyalty[13] to plan participants upon plan administrators and the Supreme Court’s recognition of plan administrators’ structural conflicts of interest, to limit the rule addressing ambiguities only to malfeasance.

The contra proferentem doctrine obviously made the difference for Stein, and resolving ambiguities in favor of plan participants is also consistent with ERISA’s overriding goal of protecting promised benefits as set forth in the statute’s preamble.[14]

Thus, the contra proferentem principle should be applied uniformly in all ERISA cases, regardless of the standard of judicial review.

Mark DeBofsky is a shareholder at DeBofsky Law Ltd.

This article was first published by Law 360 on March 23, 2023

[1] Stein v. Paul Revere Life Insurance Company, 2023 WL 2539004 (E.D. Pa. March 16, 2023).

[2] Citing Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 74 (3d Cir. 2011).

[3] Chapman v. Unum Life Ins. Co. of Am., 555 F. Supp. 3d 713 (D. Minn. 2021).

[4] Wickman v. Northwestern National Insurance Co., 908 F.2d 1077 (1st Cir. 1990).

[5] Citing Riddle v. Life Ins. Co. of N. Am., Civ. No. 11-1034, 2011 U.S. Dist. LEXIS 117052 at *12 (D.N.J. Oct. 11, 2011) (quoting Wickman, 908 F.2d at 1088).

[6] Many courts use the terms “arbitrary and capricious” and “abuse of discretion” interchangeably in the ERISA context. See, Raybourne v. Cigna Life Ins. Co. of N.Y., 576 F.3d 444, 449 (7th Cir. 2009).

[7] See, e.g., Kimber v. Thiokol Corp., 196 F.3d 1092 (10th Cir. 1999).

[8] Metropolitan Life Insurance Company v. Glenn, 554 U.S. 105 (2008).

[9] 554 U.S. at 112 (citing Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 144 (CA3 1987)).

[10] 554 U.S. at 117.

[11] See, Hall v. Life Ins. Co. of North Am., 317 F.3d 773 (7th Cir. 2003).

[12] Clemons v. Norton Healthcare, Inc., 890 F.3d 254, 268 (6th Cir. 2018).

[13] 29 U.S.C. § 1104(a)(1). [14] 29 U.S.C. § 1001(b).

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