D & H Therapy Associates v. Boston Mut. Life Ins.

Page 143

650 F.Supp.2d 143

D & H THERAPY ASSOCIATES, LLC and Robin Dolan, Plaintiffs, v. BOSTON MUTUAL LIFE INSURANCE COMPANY, Defendant.

C.A. No. 08-05 S.

United States District Court, D. Rhode Island.

September 2, 2009.

COPYRIGHT MATERIAL OMITTED

Charles S. Beal, Esq., Beal Law LLC, Providence, RI, for Plaintiff.

Brooks R. Magratten, Esq., Pierce Atwood LLP, Providence, RI, for Defendant.

MEMORANDUM AND ORDER

WILLIAM E. SMITH, District Judge.

This matter is before the Court on the parties' cross motions. Defendant moves for summary judgment on Plaintiffs' Amended Complaint, and moves to strike certain affidavits and exhibits submitted by Plaintiffs on the grounds that these documents are not part of the administrative record. In addition, Defendant has filed a counterclaim for $145,958.32, representing benefits it alleges were overpaid to Plaintiff Robin Dolan. Plaintiffs object to Defendant's motions for summary judgment and to strike their submissions, and cross move for summary judgment on Defendant's counterclaim, and as to liability on three counts of their five-count complaint.

In her Complaint, Plaintiff Robin Dolan ("Dolan") alleges that her long-term disability insurance benefits were wrongly terminated by Defendant Boston Mutual Life Insurance Company ("Boston Mutual"). Dolan is a 50% partner in several physical therapy clinics operating as D & H Therapy Associates, LLC ("D & H"), which sponsored and administered the long-term disability plan, and which joins Dolan in her suit against Boston Mutual. Dolan twice appealed the termination of benefits to Boston Mutual's third-party claims administrator, Disability Reinsurance Management Services ("DRMS"). Unsuccessful in those efforts, she now appeals the termination to this Court.

Background

Robin Dolan is a physical therapist, who with a partner, Kim Havunen, created several related business enterprises, of which they were each 50% owners. Associated Professional Management, Inc., ("APM") is an S corporation,¹ and D & H Therapy Associates was originally a partnership. In 2004, the D & H partnership was converted to the Plaintiff entity, a limited liability company.² D & H provides physical, occupational, and speech therapy at several clinics located throughout Rhode Island. When Dolan was actively employed by D & H, she served as director of clinical services and as a physical therapist. She received a salary based on the hours she worked in those capacities, which was not connected to her ownership interests in the businesses. Her partner Havunen handled the companies' business operations.

In 2000, Havunen, working with insurance agent Benefits Services, Inc., obtained a group long-term disability insurance policy from Boston Mutual. The Boston Mutual policy was designed to replace similar coverage provided to D & H staff by Guarantee Life Insurance Company ("Guarantee Life") under a policy that was up for renewal. Havunen recalls having extensive discussions with her insurance agent on a key aspect of these policies. Specifically, Havunen understood that the Guarantee Life policy defined earnings in such a way as to safeguard employees' salary, or W-2 income, so that, in the event of disability, their annual income would be protected, even as profits from the physical therapy clinics went up or down. Havunen asserts that she only agreed to replace the existing policy with the new Boston Mutual policy when she was assured by Boston Mutual's agent that the coverage would be the same. Despite the many disputes between the parties concerning the policy and its coverage, both sides agree that the policy comprises an employee welfare benefit plan, as defined by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA").

In 2001, Dolan underwent knee surgery. She took six months off, and then returned to work part-time on August 20, 2001. In accordance with the terms of the Boston Mutual policy ("the Plan"), Dolan began to receive disability benefits on a monthly basis. In 2006, Boston Mutual discontinued Dolan's disability benefits following an audit of Dolan's business and personal income tax returns from the years 2001 through 2004. The audit was conducted by DRMS, which submitted Dolan's tax returns to CPA Judy Bogdanovich of Cardamone Risk Management Consulting Services. Bogdanovich determined that the benefits paid to Dolan over the past four years had been based exclusively on her post-disability W-2 wages. However, Dolan's tax returns revealed the receipt of both shareholder income from APM and partnership income from D & H that Bogdanovich believed should have been considered when calculating the proper benefit amount. When the business profits were included, Dolan was making considerably more than she had earned in pre-disability wages, at least for some of the years in question. DRMS concluded that Dolan was not entitled to any benefits after January 1, 2002. When Boston Mutual advised Dolan of the results of the audit by letter dated August 25, 2006, it also noted its right under the Plan to recover overpayments made as a result of fraud or error.

Recalling their insistence that the Plan's definition of "earnings" include salary income only, Plaintiffs objected strenuously to Defendant's interpretation of the Plan language, which calculated monthly disability benefits by comparing pre-disability W-2 earnings to the combined total of post-disability W-2 earnings and shareholder and partnership profits. Plaintiffs, through their attorney by letter dated October 2, 2006, argued that income from the partnership and the S corporation should not be considered "employment earnings" as defined by the Plan. Moreover, Dolan asserted that the shareholder income reflected in her tax returns was "paper" or "phantom" income only, and that she had not actually received any of this income.

The dispute between the parties escalated, with Defendant carrying out surveillance on Dolan and charging her with lack of cooperation in producing requested financial records. On October 27, 2006, Boston Mutual discontinued benefits payments, and demanded that Dolan repay $145,958.32 in benefits received after January 1, 2002. Dolan appealed the termination of benefits on December 13, 2006. After another review and report from Bogdanovich, Boston Mutual denied Dolan's appeal on May 1, 2007, stating that Dolan was not eligible for benefits after December 31, 2001.

Dolan again appealed the termination of benefits on June 28, 2007. On September 21, 2007, Hanuven submitted additional information concerning Dolan's role in the companies. Bogdanovich again reviewed the file and confirmed that, as of 2002, Dolan was ineligible for disability benefits based on her monthly income. Boston Mutual also referred Dolan's file to a doctor for a medical review, and to a vocational consultant to determine her ability to carry out the various functions of her occupation. Those reviews indicated that Dolan was unlikely to be able to work again as a physical therapist. However, on November 29, 2007, Boston Mutual upheld the termination of Dolan's benefits, based on its financial analysis of her post-disability income. In addition, Boston Mutual noted that the additional material submitted by Hanuven demonstrated that Dolan was continuing to perform many of her duties as partner and director of clinical services for the businesses. On January 3, 2008, Dolan and D & H filed this lawsuit. Dolan's physical condition has worsened over time and she is now completely unable to work. Since February 24, 2008, she has not been employed by D & H in any capacity; nor has she received a salary from D & H.

The Amended Complaint, Counterclaim and Motions

In their five-count Complaint, Plaintiffs allege that Defendant breached the insurance contract (Count I), that the denial of benefits has no reasonable basis and was made in bad faith (Count II), and that they were fraudulently induced to give up their previous insurance coverage by Defendant's assurances that its coverage would replicate the Guarantee Life policy (Count V). In addition, Plaintiffs seek declaratory relief (Count III), and recovery of the benefits that they are entitled to pursuant to 29 U.S.C. § 1132 (Count IV).

Defendant's counterclaim demands reimbursement of its overpayment of benefits to Dolan in the amount of $145,958.32. Its Motion for Summary Judgment calls for the dismissal of all the claims in the Complaint, and judgment in its favor on the counterclaim. Defendant has also filed a Motion to Strike four affidavits submitted by Plaintiffs, along with four appended exhibits, as well as all references to these affidavits and exhibits in Plaintiffs' memoranda. The disputed documents all bear on Plaintiffs' state law claim of fraudulent inducement, and are offered to establish what kind of coverage was provided by the Guarantee Life insurance policy, and to shed light on the negotiations that took place between Boston Mutual and D & H. Defendant objects to these documents because they were not included in the administrative record reviewed by DRMS in connection with Dolan's two previous appeals, which is typically the exclusive record under review in an ERISA action.

Plaintiffs move for partial summary judgment as to liability on Counts III, IV and V of their Amended Complaint. They object to Defendant's Motion for Summary Judgment and to Defendant's Motion to Strike their documents provided in support of the fraudulent inducement claim. On March 16, 2009, during oral argument before this Court on the cross Motions for Summary Judgment, Plaintiffs' counsel conceded that their Counts I and II, which sound in state law, are preempted by ERISA, and that Count III for declaratory judgment could be merged into Count IV for recovery of benefits. Consequently, the Court will focus on Counts IV (now merged with Count III) and V, as well as on Defendant's counterclaim and the issue of whether...