Split Created: Addict's Risk of Relapse As Disability Under ERISA

Per Colby v. Union Sec. Ins. Co. (1st Cir. Jan. 17, 2013)

I hated ERISA cases as a clerk.  They were like petitions for review of agency action, requiring record-intensive factual review in an area where the governing law is generally settled--i.e., defer to "reasonable" interpretations of statute/plan language provided there is "some evidence" to support factual positions.  Except that in ERISA, the "agency" record consisted of hundreds of pages of undecipherable doctor's scrawl and review of that record required some medical knowledge.

But enough about me, and onto this relatively straightforward split.  Can an ERISA plan administrator apply a per se rule barring disability benefits for on-the-wagon addicts?  The CA4 said yes, relapse is a choice not a disability.   The CA1 now says no, the present risk of relapse can (but does not have to) amount to a disability.  (See p. 16, 19-20.)  To the extent it influences your opinion, plaintiffs in both cases were anesthesiologists who became addicted to the drugs they administered.

I agree with the CA1.  The CA4's reasoning just looks sparse to me.  In essence, the CA4 ruled that the pre-existing division in precedent on this point ipso facto rendered the administrator's interpretation of the plan reasonable.  But the CA4 performed no analysis of the plan's text--i.e., the definition of disability--itself.  In contrast, the CA1 performs just such a textual analysis and demonstrates how addiction and risk of relapse fall within the plain language of the plan.

That said, I am not on board for all of the CA1 opinion.  For example, the Court bolsters its textual analysis with a reference to the contra proferentem doctrine.  (p. 17.)  But there is a circuit split on whether contra proferentem can ever apply to ERISA plans.  (CA9 yes; CA8 no).  Even assuming the doctrine could apply, moreover, its application is quite troubling where (as here) the plan administrator is explicitly granted discretion to resolve ambiguities.  Unlike certain canons of construction (such as expressio unius or noscitur a sociis), contra proferentem--like the rule of lenity--is a policy-based rule that only comes into play when the statute (or contract) is determined to be ambiguous.  But ambiguity should trigger the administrator's discretion not policy-based canons.  (This is the CA10's approach to contra proferentem in the ERISA context).

The existence of multiple circuit splits make this case an interesting candidate for review, especially where the Court semi-regularly grants cert to clarify ERISA jurisprudence.  If the Court does take cert, I hope it will deal with the contra proferentem issue in the broader context of Chevron deference.  The circuits are currently split on whether to apply traditional canons of statutory construction at Chevron step one, in determining whether the statute plainly addresses an issue.  My view is that some, but not all, of the canons should be applied.  More specifically, the text-based canons should be applied in determining whether Congress has spoken clearly, but not the policy-based canons, which operate more as a thumb on the scale than as an interpretative tool.

Since I opened with a side note, I might as well close with one.  It appears that the First Circuit must batch cases for each panel, and that this panel received the "circuit split" batch.  At least three of my previous posts have related to decisions also arising out of this same sitting.  As before, my best wishes go out to Judge Boudin and his family.

Update: What Constitutes One ‘Occurrence’ Under Liability Insurance Policies?

Per Madison Materials Co., Inc. v. St. Paul Fire & Marine Ins. Co., 2008 WL 867931, *4-*9 (5th Cir. Apr. 2, 2008)

The state-law based split over the meaning of ‘occurrence’ in insurance contracts, previously discussed on this blog here, proves decisive in this Fifth Circuit opinion, which holds that ten years of embezzlement are a single occurrence under Mississippi law’s interpretation of the relevant policy language. The Fifth Circuit holds that occurrence relates to the cause of the injury and that the single employee’s dishonesty caused all ten years of losses.

The CA 5 notes that an opinion from the CA 9, applying California state law, interprets similar policy language differently. As an initial matter, the relevant policy language was different (the Cali. case explicitly included a term limitation in the policy). More importantly, however, is the fact that this split turns on independent state grounds. The previous post contains the information necessary to distinguish these two cases.

Split Noted: Can a Cause, as Opposed to a Symptom, of an Illness Create Ambiguity in an ERISA Plan?

Per Fitts v. Unum Life Ins. Co., No. 07-7097, *4 (D.C. Cir., March 28, 2008)

A lawyer for Fannie May, Jane Fitts was forced to stop working by her bipolar disorder. She applied for long-term disability benefits, but Unum (the administrator of the benefits plan) informed her that she would only receive benefits for two years because the plan limited benefits for those disabled by a mental illness.

Fitts filed suit under ERISA seeking benefits due under the plan, and the parties disputed whether bipolar disorder was a physical or mental illness. The district court original reviewed Unum's classification for abuse of discretion. The D.C. Circuit reversed and remanded, holding that Unum’s classification was subject to de novo review. After discovery, the district court granted summary judgment to Fitts on the issue of whether bipolar disease was a physical or mental illness. It held that bipolar disorder is a physical illness as a matter of law because it is characterized by an assortment of physical, psychological, and social factors.

In the course of reviewing this ruling, the D.C. Circuit notes that the circuits are split over whether the cause of an illness can create an ambiguity in an ERISA plan. The CAs 5,8 hold that it is the symptoms, not the causes, that determine whether an illness is physical or mental. The CAs 7,9,11 permit cause-based interpretations. The panel does not decide the issue in this case, however, because there were issues of material fact concerning whether physical factors can cause bipolar disorder and if they did so in this case. It thus reverses the grant of summary judgment and remands for further proceedings.

Additional coverage from Decision of the Day. Please note that DotD's homepage has changed, it can now be found here.

State Split Widened: What Constitutes One ‘Occurrence’ Under Liability Insurance Policies?

Per Am. Family Mut. Ins. Co. v. Wilkins, 2008 WL 818954 (Kan. Mar. 28, 2008)

This case is before the Kansas Supreme Court on certification from a federal district court. The point at issue concerns the meaning of occurrence in insurance contracts – as in a per-occurrence limit of liability – which is a matter of state law. Although several circuits have rendered decisions on the issue, they have done so as an application of state law in diversity cases. As such, there is no possibility that this will be resolved by the Supreme Court, but I found the possible interpretations interesting enough to share.

Occurrence could refer to (1) the cause of the injury, (2) the effects of the action, or (3) the event which triggered liability. Rather than relate the facts of this case, I will use a hypothetical example to explain the differences between these options. A restaurant owner serves one batch of poisoned bread at two different meals to three different customers each time. Given this situation, definition one would yield one occurrence – the baking of the bread. Definition two, on the other hand, yields six different occurrences, as six customers each felt the effects of the action. Finally, definition three might yield either one or two occurrences, depending on how the court looked at it. The event could be seen as the poisoning of the bread, or serving it to customers (twice). The Kansas Supreme Court also notes the interplay between definition one and three, stating “the liability-triggering event test, in certain circumstances, is a narrow class that can overlap with the cause test.”

Definition one is by far the majority school and the one chosen by the Kansas Supreme Court in this instance. For a full listing of the positions of various states in this split, see generally 64 A.L.R. 4th 668. Finally, note that Kansas has a statutory mechanism providing for an intermediate appellate court judge to sit in the place of a recused Justice – the lack of which at federal Supreme Court was recently discussed at SCOTUSblog.

Split Widened: Is a Clear Statement Required to Avoid the Application of the Doctrine of Uberrimae Fidei?

Per PHL Variable Ins. Co. v. Fulbright McNeill, Inc., 2008 WL 795063 (8th Cir. Mar. 27, 2008).

Seriously? The Circuits have issued ten decisions total using the term ‘uberrimae fidei’ in the last five years, including three in the last month. Perhaps the doctrine truly is “on everyone’s lips,” as Judge Kozinski suggested a week ago. In this decision, a divided Eighth Circuit panel applies to the doctrine to life insurance contracts, finding that the claimant violated a continuing duty to disclose while his application for coverage was pending. The contract itself made no mention of such a continuing duty and only provided limited bases for recission. Nonetheless, the panel, over a dissent, revokes the contract and holds that the policy language is not clear enough to avoid the application of the doctrine of uberrimae fidei, or of the most abundant good faith. In so holding, it widens the split between the CA 9 and CA 11 previously discussed here.

Split Created: Is a Clear Statement Required to Avoid the Application of the Doctrine of Uberrimae Fidei?

Per New Hampshire Ins. Co. v. C'Est Moi, Inc., 2008 WL 732487, *3-*4 (9th Cir. Mar. 20, 2008).

“We consider the doctrine that's on everyone's lips: uberrimae fidei.” With that dramatic beginning, Chief Judge Kozinski authors an opinion creating a circuit split on this fascinating issue of maritime insurance contracts. Note, however, that Judge Kozinski probably does not mean this introduction facetiously – Eugene Volokh, a previous clerk, recently wrote a blog post concerning the phrase, and Judge McKeown wrote a long opinion concerning the doctrine just a month ago. The doctrine – which literally translated means ‘of the most abundant good faith’ – requires those seeking marine insurance to reveal every fact that is material to the risk.

The insurance policy in this case contained a provision which voided coverage if the applicant intentionally conceals or misrepresents facts relating to the insurance application or risk thereof. The question is whether this provision was sufficient to override the default application of uberrimae fidei. Judge Kozinski says no and requires an ‘unequivocal’ and ‘clear policy statement’ demonstrating both parties’ intent to supercede the common law obligation. In so holding, he acknowledges the creation of a circuit split with the CA 11, which held that similar language did override the default common law rule. Interestingly, this whole discussion appears to be dicta, because the panel continues to affirm the district court’s finding that there was material misrepresentation sufficient to void the insurance even under its own terms.

For additional coverage, see The California Appellate Report, The California Blog of Appeal, Decision of the Day, and the Volokh Conspiracy.