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Gross v. Sun Life Assur. Co. of Canada

United States Court of Appeals, First Circuit

August 16, 2013

Diahann L. GROSS, Plaintiff, Appellant,

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[Copyrighted Material Omitted]

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Michael D. Grabhorn, with whom Jonathan M. Feigenbaum and Grabhorn Law Office, PLLC were on brief, for appellant.

Joshua Bachrach, with whom Wilson, Elser, Moskowitz, Edelman & Dicker LLP was on brief, for appellee.

Before THOMPSON, SELYA, and LIPEZ, Circuit Judges.

LIPEZ, Circuit Judge.

This case requires us to determine, inter alia, whether the " safe harbor" exception to the Employee Retirement Income Security Act of 1974 (" ERISA" ) applies to the long term disability insurance policy that covers appellant Diahann Gross. The district court found that it did not. The court therefore held that Gross's state law claims were preempted. Furthermore, it concluded that her insurer was entitled to the highly deferential " arbitrary and capricious" review prescribed for certain ERISA benefits decisions. Using that standard, the court upheld the insurer's denial of benefits to Gross.

On appeal, Gross asserts that the district court triply erred. She first argues that the safe harbor exception applies, removing her benefits claim from the ERISA scheme. She further maintains that, even accepting that ERISA governs, the court reviewed the insurer's decision under the wrong standard and— even under that standard— reached the wrong result.

Each of appellant's contentions raises a substantial question. Although we agree with the district court that the safe harbor exception is inapplicable, we hold that the benefits denial was subject to de novo review. Joining several other circuits, we conclude that language requiring proof of disability " satisfactory to us" is inadequate to confer the discretionary authority that would trigger deferential review. We also conclude that the administrative record is inadequate to allow a full and fair assessment of Gross's entitlement to disability

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benefits. Hence, we vacate the judgment and remand the case to the district court so that it may return the matter to Sun Life for further development of the record as described below.


In reciting the facts germane to resolution of this ERISA appeal, we draw on the record that was before the claims administrator. Buffonge v. Prudential Ins. Co. of Am., 426 F.3d 20, 22 (1st Cir.2005).

A. Background

Appellant Gross, an optician and office manager for Pinnacle Eye Care LLC in Lexington, Kentucky, was placed on disability leave in early August 2006, when she was 34 years old. She complained of severe pain, weakness and numbness in her legs and arms, and recurring headaches that had been worsening since early 2004. Gross's treating physician concluded that she had reflex sympathetic dystrophy (" RSD" ),[1]fibromyalgia, migraines, and chronic fatigue. In a report signed in September 2006, the doctor wrote that Gross " cannot work."

Gross is covered under a long term disability (" LTD" ) policy that Pinnacle obtained from Medical Group Insurance Services, Inc. (" MGIS" ), a company that sells employee benefit coverage provided by the United Health Services Employer's Trust (" the Trust" ). Pinnacle had obtained group policies from the Trust, through MGIS, since 2003,[2] with the policies originally written by The Hartford Life & Accident Insurance Company (" Hartford" ) and, beginning in 2006, by appellee Sun Life Assurance Company of Canada. Pinnacle paid 100 percent of its employees' premiums for life and accidental dismemberment and death (" AD & D" ) insurance, but the employees themselves paid for LTD coverage. Despite the payment differences, the policies were administered under the same group number, MGIS Group. No. 20178808, and all of the coverage was billed to Pinnacle in a single monthly statement.[3]

Shortly after leaving her job, Gross filed a claim with MGIS seeking long term disability benefits. The administrative record includes voluminous medical evidence, some submitted by Gross to support her application for benefits and some solicited by Sun Life to aid in its evaluation. Sun Life also hired an investigator to perform a background check and video surveillance on Gross. In April 2007, Sun Life notified Gross that it had denied her request for benefits because of " insufficient objective evidence to substantiate" a disability that precluded her from performing her duties at Pinnacle. In so concluding, the insurer relied, inter alia, on its video surveillance and the opinions of consulting physicians who reviewed Gross's medical history but did not physically examine her. Gross filed an administrative appeal, which Sun Life rejected in January 2008 with the explanation that it had found " no basis on which to conclude that Ms. Gross would be unable to perform the Material and Substantial Duties of her Own Occupation." Sun Life emphasized the discrepancy between Gross's activities while under surveillance

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and her appearance and behavior during medical visits.

B. Procedural History

Gross initially filed a lawsuit against Sun Life in Kentucky state court challenging the insurer's denial of benefits on state law grounds, but later dismissed that action without prejudice. In September 2009, she filed suit in Norfolk County Superior Court in Massachusetts, again alleging only state law causes of action.[4] Sun Life removed the new action to federal district court and filed a motion to dismiss based on ERISA preemption. After the court ruled in Sun Life's favor, Gross amended her complaint to add claims under 29 U.S.C. § 1132, which, among other things, provides a cause of action for an ERISA plan participant " to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B).

In February 2011, Gross filed a motion asking that the district court apply de novo review in its evaluation of her ERISA claims, based on the Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). See id. at 115, 109 S.Ct. 948 (stating that the default standard for ERISA claims is de novo). The court denied the motion, and cross motions for summary judgment followed. On January 6, 2012, the district court granted summary judgment for Sun Life and denied Gross's parallel motion. The court held that Sun Life's decision to deny benefits was not arbitrary and capricious, and thus complied with ERISA's requirements. In so ruling, the court noted that plan administrators " ‘ are not obligated to accord special deference to the opinions of treating physicians,’ " Gross v. Sun Life Assurance Co. of Canada, No. 09-11678-RWZ, 2012 WL 29061, at *4 (D.Mass. Jan. 6, 2012) (quoting Black & Decker Disability Plan v. Nord, 538 U.S. 822, 825, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003)), and that " even ‘ sporadic surveillance capturing limited activity’ may be used to uphold termination of benefits, particularly where videos show plaintiff engaging in activities that specifically contradict her claims as to ‘ how she spent her time and what [actions] she could tolerate,’ " id. at *5 (quoting Maher v. Mass. Gen. Hosp. Long Term Disability Plan, 665 F.3d 289, 295 (1st Cir.2011)).

On appeal, Gross asserts that the district court incorrectly found that: (1) her long term disability policy was part of an ERISA plan; (2) the plan gave Sun Life discretionary authority to make claims decisions, thus allowing only arbitrary and capricious review of the insurer's rejection of benefits; and (3) Sun Life permissibly exercised its discretion in denying benefits to her. We begin as we must with Gross's contention that her claims do not fall under ERISA.


A finding that ERISA governs a benefits plan typically will impact a plaintiff's appeal of her insurer's denial of benefits in ways that will make that challenge more difficult. See Johnson v. Watts Regulator Co., 63 F.3d 1129, 1131-32 (1st Cir.1995). The application of ERISA triggers preemption of state-law principles, see 29 U.S.C. § 1144(a), which " may cause potential state-law remedies to vanish, or may

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change the standard of review, or may affect the admissibility of evidence, or may determine whether a jury trial is available." Watts Regulator, 63 F.3d at 1131-32 (citations omitted); see also Aetna Health Inc. v. Davila, 542 U.S. 200, 215, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (" The limited remedies available under ERISA are an inherent part of the ‘ careful balancing’ between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans." (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 55, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987))). Gross's vigorous opposition to applying ERISA to her claim is therefore unsurprising.

With exceptions not pertinent here, ERISA applies to " any employee benefit plan if it is established or maintained ... by any employer engaged in commerce or in any industry or activity affecting commerce." 29 U.S.C. § 1003(a)(1).[5] We have observed that " the existence of a plan turns on the nature and extent of an employer's benefit obligations," Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454 (1st Cir.1995), and, accordingly, the two common ways to show that a benefits decision falls outside ERISA both involve inquiry into the employer's relationship with the benefits under scrutiny. First, the regulatory " safe harbor" provision excludes " group or group-type insurance programs" from ERISA's oversight if they satisfy four criteria:

(1) the employer makes no contributions on behalf of its employees;
(2) participation in the program is voluntary;
(3) the employer's sole functions are to collect premiums and remit them to the insurer, and, without endorsing the program, to allow the insurer to publicize the program to its employees; and
(4) the employer receives no consideration for its efforts, other than reasonable compensation for administrative services necessary to collect premiums.
see also Watts Regulator,

A benefits program that fails the safe harbor test will not necessarily be deemed an ERISA plan, however. Watts Regulator, 63 F.3d at 1133. Exemption also may result from application of " the conventional tests" for determining whether ERISA governs. Id. An ERISA welfare benefit plan has " five essential constituents" :

(1) a plan, fund or program (2) established or maintained (3) by an employer or by an employee organization, or by both (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits (5) to participants or their beneficiaries.

Wickman v. Nw. Nat'l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.1990) (quoting Donovan v. Dillingham, 688 F.2d 1367, 1370 (11th Cir.1982) (en banc)). We have observed that " [t]he crucial factor in determining if a ‘ plan’ has been established is whether the purchase of the insurance policy constituted an expressed intention by the employer to provide benefits on a regular and long term basis." Id. at 1083. The inquiry is performed from the perspective of a reasonable person: " [A] ‘ plan, fund or program’ under ERISA is established if from the surrounding circumstances a reasonable

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person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits." Id. at 1082 (quoting Donovan, 688 F.2d at 1373).

Thus, even if the Sun Life policy does not fall within the regulatory safe harbor, we must separately determine if it was a " plan" or " program" that was " established or maintained" by Pinnacle. Although we often start with the safe harbor inquiry, we begin here by examining whether Pinnacle's benefits arrangement is properly classified as an ERISA plan because that sequence better fits our analysis.

A. Standard of Review

Although the district court's refusal to remand this case to state court was a ruling on subject-matter jurisdiction engendering de novo review, see Samaan v. St. Joseph Hosp., 670 F.3d 21, 27 (1st Cir.2012); BIW Deceived v. Local S6, Indus. Union of Marine & Shipbuilding Workers of Am., 132 F.3d 824, 830 (1st Cir.1997), the underlying jurisdictional issue— whether ERISA governs the Pinnacle plan— is a mixed question of fact and law triggering scrutiny " along a degree-of-deference continuum," Watts Regulator, 63 F.3d at 1132. Where, as here, factual questions about the plan dominate the inquiry, the clear-error standard will be our primary tool. See id. We keep in mind, however, that " the removing party bears the burden of persuasion vis-à-vis the existence of federal jurisdiction." BIW Deceived, 132 F.3d at 831.

B. Existence of an ERISA Plan

The record demonstrates beyond debate that the " crucial factor" we identified in Wickman is satisfied here, i.e., that Pinnacle undertook to provide benefits for its employees " on a regular and long term basis." 908 F.2d at 1083; see also, e.g., Anderson v. UNUM Provident Corp., 369 F.3d 1257, 1263 (11th Cir.2004) (" [T]he ‘ established or maintained’ requirement is designed to ensure that the plan is part of an employment relationship...." (alteration in original) (internal quotation marks omitted)). Pinnacle has participated in the United Health Services Employer's Trust since at least October 2003, when the company and MGIS representatives signed a one-page " Group Benefit Summary" issued by the Trust that described the life, accidental death, and LTD coverages available to Pinnacle's employees and their beneficiaries.[6] So far as the record shows, each of those benefits has been offered to employees or provided at no cost on an ongoing basis since that time.

Gross does not address ERISA's applicability to Pinnacle's insurance benefits generally, but focuses instead on the LTD policy. Emphasizing that the LTD policy is the only one the employees must pay for themselves,[7] she seeks to divorce that policy from any benefit " program" and have us separately evaluate whether ERISA applies to it. The district court, however, viewed the LTD policy as one part of a " comprehensive employee benefit plan." Gross v. Sun Life Assurance Co. of Can., No. 09-11678-RWZ, 2010 WL 817409, at *2 (D.Mass. March 4, 2010). We detect no

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clear error in that conclusion. As detailed below, the record provides ample support for the court's finding that Pinnacle's package of insurance benefits constituted a unitary ERISA program.[8]

Significantly, the Trust identifies all of the Pinnacle employee policies by a single group number. In addition, as noted above, the Group Benefit Summary issued by the Trust referred to all of those policies. Paul Wedge, the " owner-member" of Pinnacle who signed the Summary on behalf of the employer, is noted on the document as the administrative contact, without distinction among policies. Similarly, invoices sent to Pinnacle by MGIS in 2006 list the life, AD & D, LTD, and short-term disability policies with the amounts due for each. The record also contains an " Employer's Participation Agreement," signed by Wedge in 2006, requesting membership in the Trust " and coverage under the Group Policies issued to the Trustees of the Trust now in effect or later modified or replaced," again without distinction among the different types of insurance offered by the Trust.

The Trust polices have thus consistently been treated as a unit, despite their different contribution requirements. Moreover, the information provided to employees was in keeping with that approach. The record contains single-page summary fliers for the life insurance and LTD coverages that are similar in appearance, both containing the Sun Life logo in the upper right corner and both offering " Highlights" of the particular policy " for Employees of Pinnacle Eye Care, LLC." The disability flier contains instructions on how to enroll, directs employees to return the form to their employer, and tells them that they " must elect or refuse insurance coverage within 31 days of your date of eligibility" — creating an explicit link between that form of insurance and Pinnacle notwithstanding the employer's lack of financial involvement. The link is reinforced by the requirement that an enrolling employee acknowledge the following understanding: " I am requesting LTD coverage under a Group Insurance policy offered by my employer. This coverage will end when my employment terminates." Yet another indicator of Pinnacle's role is the fine print at the bottom of the flier describing the LTD coverage as a " benefit [ ] available from your employer" and advising employees that Pinnacle will provide a copy of Sun Life's LTD booklet with complete details " [w]hen you become eligible for benefits under the plan."

In these circumstances, we see no justification for isolating the long-term disability policy from Pinnacle's insurance package for purposes of our ERISA inquiry. A " plan" under ERISA may embrace one or more policies, see Donovan, 688 F.2d at 1373 (noting that a benefits plan or program may consist of " a group policy or multiple policies" ), quoted in Wickman, 908 F.2d at 1083, and it strikes us as both impractical and illogical to segment insurance benefits that are treated as a single group and managed together, potentially placing some under ERISA and some outside the statute's scope. In so concluding, we join several other courts that have declined to " unbundle [ ]" a set of policies or

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benefits offered by an employer to its employees when evaluating whether ERISA governs. Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 538 (7th Cir.2000); see also Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 463 (10th Cir.1997) (rejecting plaintiff's attempt to " sever her optional disability coverage from the rest of the benefits she received through her employer's plan" ); [9] Peterson v. Am. Life & Health Ins. Co., 48 F.3d 404, 407 (9th Cir.1995) (concluding that policy that did not on its own comply with ERISA requirements nonetheless fell under the statute because it " was just one component of [the] employee benefit program and ... the program, taken as a whole, constitutes an ERISA plan" ); [10] Pando v. Prudential Ins. Co. of Am., 511 F.Supp.2d 732, 736 (W.D.Tex.2007) (" [W]here the employer contributes to some, but not all, benefits which arise from the employment relationship, a court will separately evaluate whether a particular policy is an ERISA plan only when it is clearly separate from the benefits plan to which the employer does contribute." ); cf. Smith v. Jefferson Pilot Life Ins. Co., 14 F.3d 562, 567 (11th Cir.1994) (rejecting plaintiff's attempt " to sever the dependent coverage feature from the benefits package provided ... through the Plan" ).[11]

Having concluded that the LTD policy must be treated as part of Pinnacle's longstanding insurance benefits program, we also conclude that a reasonable person could readily ascertain the program's specific elements— the benefits, the class of beneficiaries, the source of funding, and procedures for obtaining benefits. See Wickman, 908 F.2d at 1082. The one-page Highlights fliers for the LTD and the combined life and AD & D insurance policies generally describe the benefits, costs, and enrollment procedure, and they direct employees to Sun Life's detailed booklets for " complete plan details." The life insurance flier notes that eligible employees will need to designate beneficiaries using one

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of two identified forms, and the LTD flier states that the benefits are " [a]vailable to all full time employees working 30 or more hours per week."

Also in the record is an individualized LTD " Benefit Highlights" form prepared for Gross that lists pertinent details of the Sun Life policy, among them the waiting period for eligibility (" 1st of the month following full-time employment" ); the benefit percentage of earnings (sixty percent); the maximum monthly benefit ($9,000); and the elimination period (180 days). Sun Life's forty-seven page LTD booklet contains instructions on filing a claim and explains the appeals process, including " your right to bring a civil action under ERISA, § 502(a) following an adverse determination on review." See Wickman, 908 F.2d at 1083 (noting that handbook detailing ERISA rights, distributed to employees, " is strong evidence that the employer has adopted an ERISA regulated plan" ); cf. Thompson v. Am. Home Assurance Co., 95 F.3d 429, 437 ...

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