Larry Carden v. Aetna Life Insurance Company, 559 F.3d 256 (4th Cir. 2009) - United States Court of Appeals for the Fourth Circuit - Robert E. Hoskins

I represented the plaintiff in this major published decision out of the Fourth Circuit.  The case is Carden v. Aetna Life Insurance Company.  The relevant facts were simple enough.  The plaintiff suffered from one condition which caused him to be disabled and entitled to long term disability benefits under an LTD plan insured by Aetna.  Plaintiff also had a workers’ compensation claim based upon a completely different medical condition which did not contribute to his right to receive benefits from Aetna.  The issue for the court was whether Aetna was allowed an “offset” to its LTD benefit obligation for monies plaintiff received on his workers’ comp claim.  Aetna, obviously, felt it did and on behalf of the client, I argued it did not.  The District Court ruled against Carden and held that Aetna was entitled to the offset under the circumstances.  The District Court ruled that Aetna’s “decision is consistent with the plain and unambiguous language of the plan . . .”  District Court Opinion, 2007 U.S. Dist. LEXIS 81678, *15 (D.S.C. 2007).  At least one other District Court had similarly held that the Aetna policy document was unambiguous and that it clearly allowed Aetna the offset.

The Fourth Circuit actually reversed the District Court, in substance, holding that the plan was ambiguous on the relevant point.  The Fourth Circuit ruled that Aetna’s plan was “silent on the matter”.  Under longstanding Fourth Circuit authority, if a plan term is vague or ambiguous that ambiguity was to be construed against the drafter.  Under longstanding authority, Carden would have prevailed given the ambiguity.  However, the Fourth Circuit, in Carden, reverses its longstanding authority recognizing the doctrine of contra proferentem to interpret ambiguous provisions.  The relevant part of the opinion states:

Before Glenn, we had indeed developed a rule whereby ambiguities in ERISA plans were construed against the drafter whenever a conflict of interest existed. See Carolina Care Plan (v. McKenzie), 467 F.3d at 389; Bynum v. Cigna Healthcare of N.C., Inc., 287 F.3d 305, 313-14 (4th Cir. 2002); Bailey v. Blue Cross & Blue Shield of Va., 67 F.3d 53, 58 (4th Cir. 1995); Doe v. Group Hospitalization & Med. Servs., 3 F.3d 80, 88-89 (4th Cir. 1993). In those cases, we applied this "contra proferentem" rule even when the plan language gave discretion to the plan administrator to interpret disputed or doubtful terms.

 

But Glenn now forecloses our application of that rule to curb the discretion given an administrator by a plan, ruling that it is not "necessary or desirable for courts to create special burden-of-proof rules, or other special procedural or evidentiary rules, focused narrowly upon the evaluator/payor conflict." 128 S. Ct. at 2351. Indeed, the Court rejected the very idea of applying hard and fast rules for the review of ERISA determinations, calling them "formulas that will falsif[ y] the actual process of judging" and "instrument[s] of futile casuistry." Id. at 2352 (alterations in original) (citation and internal quotation marks omitted). Rather, under the Glenn review structure, we must consider the administrator’s conflict of interest as only "one factor among many" in determining the reasonableness of the administrator’s decision exercising discretionary authority. Id. at 2351.

As the result of Glenn, whenever a plan administrator employs its interpretive discretion to construe an ambiguous provision in favor of its financial interest, that fact may be considered as a factor weighing against the reasonableness of its decision. Conversely, when the administrator exercises its interpretive discretion to construe an ambiguous provision against its financial interest, that fact may be considered as a factor weighing in favor of the reasonableness of the decision. But this factor—in either case—is only considered with all of the other factors that may be brought to bear in determining whether the administrator abused his discretion. See Glenn, 128 S. Ct. at 2351. The weight accorded to this factor will, of course, depend largely on the plan’s language and on consideration of other relevant factors. In Booth v. Wal-Mart Stores, Inc. Associates Health & Welfare Plan, 201 F.3d 335 (4th Cir. 2000), we identified eight nonexclusive factors that guide our ERISA abuse-of-discretion review:

 (1) the language of the plan; (2) the purposes and goals of the plan; (3) the adequacy of the materials considered to make the decision and the degree to which they support it; (4) whether the fiduciary’s interpretation was consistent with other provisions in the plan and with earlier interpretations of the plan; (5) whether the decisionmaking process was reasoned and principled; (6) whether the decision was consistent with the procedural and substantive requirements of ERISA; (7) any external standard relevant to the exercise of discretion; and (8) the fiduciary’s motives and any conflict of interest it may have.

Id. at 342-43 (footnote omitted).

The adjustment to our ERISA jurisprudence in light of Glenn is necessitated also by Glenn’s reemphasis on resolving ERISA questions such as these under principles of trust law, analogizing the plan administrator to a trustee. See Glenn, 128 S. Ct. at 2347. The Court thus reaffirmed its holding in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989), that courts are to apply trust-law principles to ERISA determinations. Among the principles of trust law reiterated by Firestone are those that "[a] trustee may be given power to construe disputed or doubtful terms, and in such circumstances the trustee’s interpretation will not be disturbed if reasonable." 489 U.S. at 111 (citing G. Bogert & G. Bogert, Law of Trusts and Trustees § 559, at 169-171 (2d rev. ed. 1980)).

We petitioned the Fourth Circuit to reconsider or rehear the case arguing that, although the court properly did away with contra proferentem, the underlying ERISA principles dictated a different result.  Our position was set forth in our petition, in relevant part, as follows:

ERISA’s fiduciary requirements demand that an insurer claim fiduciary resolve ambiguity in favor of the plan participant.  It is the claim fiduciary’s duty to resolve ambiguity in favor of the participant and not the courts to do so pursuant to contra proferentem.  In reality, neither McKenzie or Doe need even have mentioned the doctrine of contra proferentem.  Although the court has disposed of contra proferentem, the underlying trust law holding of McKenzie remains sound law and, respectfully, the panel opinion overlooks this fact.

 

When the administrator of a self-funded plan decides a point on which the plan is silent in favor of the plan, the resulting financial benefit flows directly to the plan, thereby, preserving the res and benefiting plan participants.  However, when an insurer claim fiduciary decides a point on which the plan is silent in favor of its financial interest only the insurer profits.  The plan participant not only suffers the immediate loss of benefits, but for reasons set forth below, all plan participants and the plan itself ultimately suffer because of a “chilling effect” upon drafting plan documents with specificity.  Rewarding the insurer for “silence” given the insurer incentive to more frequently be silent on important points (i.e., practice subterfuge).  As explained below, lack of specificity is contrary to the stated purposes of ERISA.

Unfortunately, the court declined to reconsider the opinion.  Carden along with another recent decision in which I was not involved, Champion v. Black & Decker, clearly indicate that the law of ERISA is at a cross roads post Glenn.  It will be interesting to see how the law develops in the Fourth Circuit in ensuing years.  To view a copy of the District Court decision, click here.  To view the Fourth Circuit’s decision, click here.  To view the petition for rehearing, click here.