Cothran v. Reliance Standard Life Insurance Company, 1999 U.S. App. LEXIS 31588 (4th Cir. 1999) – decided December 3, 1999 - United States Court of Appeals for the Fourth Circuit – Robert E. Hoskins

I represented Cothran. Cothran is one of two unpublished decisions from which I have gotten a “lot of mileage” over the years. (The other unpublished case is Holder v. Woodmen of the World, click here to view the discussion from this website.) In Cothran, the plaintiff sought ERISA governed long term disability benefits. Unlike most disability cases, the insurer agreed that Cothran was disabled, but terminated payment of benefits to her after two years citing the plan’s “mental/nervous” limitation which it contended prohibited Cothran from drawing benefits beyond two years. The mental/nervous limitation stated:

“Monthly Benefits for Total Disability due to mental or nervous disorders will not be payable beyond twenty-four (24) months unless you are in a Hospital or Institution at the end of the twenty-four (24) month period.”

The administrative record established that the plaintiff suffered from a long history of a combination of mental and physical problems. I argued that the above cited plan term was ambiguous because it did not specify whether it applied only in a situation where an individual is disabled solely as a result of mental/nervous issues or, conversely, whether it applied to a situation, like Cothran’s, where an individual suffered from a combination of mental and physical issues. The district court found that the relevant plan term was ambiguous. The court stated:

“The Plan’s “mental disorder” limitation is ambiguous as applied to Cothran’s claim. The court interprets the language of the Plan “‘using ordinary principles of contract law, enforcing the plan’s plain language in its ordinary sense.’” Jenkins v. Montgomery Indus. Inc., 77 F.3d 740, 743 (4th Cir. 1996) (citing Bailey v. Blue Cross Blue Shield, 67 F.3d 53, 57 (4th Cir. 1995)). The Plan’s limitation for “mental disorders” is imprecise. The Plan pays limited disability benefits for “mental or nervous disorders.” See (Pl.’s Mem. Supp. Summ. J. Ex. B, at 8.0.) The Plan does not define the term “mental or nervous disorder.” However, Reliance argues that the limitation “carr[ies] a meaning that is easily understood by lay persons.” (Def.’s Mem. Supp. Mot. Summ. J. at 7.) In response, Cothran argues that the Plan is ambiguous because: (1) it fails to define “mental disorder” and (2) it does not state whether a mental disorder must be the sole basis of disability for the limitation to apply. (Pl.’s Mem. Supp. Mot. Summ. J. at 14-15.) Although the United States Court of Appeals for the Fourth Circuit has not addressed this language in an ERISA case, other courts, including this court, have analyzed similar language.

• • •

The Plan’s ambiguity must be construed against Reliance. The doctrine of contra proferentum provides that ambiguous contract terms are construed against the drafter. See e.g., Northbrook Excess and Surplus Ins. Co. v. Proctor and Gamble Co., 924 F.2d 633 (7th Cir. 1991) (citing Black’s Law Dictionary 296 (5th ed. 1979)). The Fourth Circuit Court of Appeals has applied this federal common law rule of contract interpretation to ERISA plans. See Doe v. Group Hospitalization and Medical Services, 3 F.3d 80, 89 (4th Cir. 1993) (citing cases from the Second, Fourth, Seventh, and Ninth Circuits). In Doe, the Fourth Circuit stated, “ambiguity . . . must be construed against the drafting party, particularly when, as here, the contract is a form provided by the insurer rather than one negotiated between the parties.” Id. Cothran did not negotiate the insurance policy in question. As an employee of Davis, it was made available to her with no discussion over the individual terms. Therefore, under the doctrine of contra proferentum, the court must construe the “mental disorder” limitation against Reliance. See Ferguson v. Fortis Benefits Ins. Co., CA No. 6:97-3606-20, (D.S.C. July 15, 1998) (granting summary judgment to plaintiff).

The mental disorder limitation states that Reliance will pay limited benefits for disabilities “due to mental or nervous disorders.” (Mem. Supp. Pl.’s Mot. Summ. J. Ex. B, at 8.0.) The Plan does not define the phrase “mental . . . disorder.” Applying the doctrine of contra proferentum, the court holds that the Plan’s limitation on “mental . . . disorder” does not apply to disorders which have a physical, in addition to mental, symptoms. Therefore, a disability caused by a combination of physical and mental ailments is not subject to the Plan’s mental illness limitation.” (Click here to see the district court opinion)

The court applied the doctrine of contra proferentum (i.e., interpreting plan ambiguities against the insurer), which has been recognized in the Fourth Circuit since 1993.

The insurer appealed the decision to the United States Court of Appeals for the Fourth Circuit. The insurer tried to use Cothran as a vehicle to convince the Fourth Circuit to “back away” from contra proferentum in abuse of discretion cases. The court declined the opportunity and affirmed the district court in ruling with Cothran. In fact, the court specifically adopted the district court’s opinion stating:

“We have carefully considered the briefs and oral arguments on behalf of the parties, and we have examined the administrative record pertinent to their positions. We find no reversible error, and we are content to adopt the opinion of the district court and affirm on its reasoning. See Cothran v. Reliance Standard Life Ins., CA No. 6:98-3489-20 (D.S.C. Feb. 9, 1999).” (Click here to see the Fourth Circuit opinion)

Over the years since Cothran was decided, I have used the case in at least a hundred other cases, all of which have been settled. I use the case for the proposition that a policy’s “mental/nervous” limitation will not apply to situations where a disability is attributable to a combination of physical and mental issues. Many insurers have changed their plan language to avoid situations like Cothran. However, many companies still have very similar language to Cothran. As recently as March 2008, I relied heavily upon Cothran in a brief in a case with similar issues and policy language. In order to use Cothran though one must have the right set of facts. In another Fourth Circuit case, in which I was not involved, a plaintiff attempted to rely upon Cothran to no avail. In Tumbleston v. A. O. Smith Corp., the plaintiff had always complained of only psychological problems and had never complained of any physical issues until such time as she had already been paid twenty-four (24) months worth of benefits. (Click here to see the Fourth Circuit opinion in Tumbleston) Under those circumstances, the court rejected the Cothran argument. The court stated:

“Tumbleston relies heavily upon the decision in Cothran v. Reliance Standard Life Ins. Co., 1999 U.S. App. LEXIS 31588, No. 99-1238, 1999 WL 1092644 (4th Cir. Dec. 3, 1999), which Tumbleston argues is “strikingly similar” to her facts. The district court disagreed, and so do we. In particular, we are satisfied that the nervous or mental limitation in Smith’s LTD Plan is not ambiguous as applied to Tumbleston’s disabling conditions.” (Click here to see the opinion in Tumbleston.)

Even as an unpublished decision, Cothran has been cited several times by other courts.