Duda v. Standard Ins. Co.

JOHN DUDA et al., Plaintiffs, v. STANDARD INSURANCE CO. et al., Defendants

CIVIL ACTION No. 12-1082

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

APRIL 30, 2015

PRATTER, J.

OPINION

Dr. John Duda, an orthopedic surgeon and co-owner of Northwest Orthopaedic Specialists, LLC ("Northwest"), applied for total and partial disability benefits under a policy issued by Standard Insurance Company ("Standard") (the "Group Policy") and under two personal insurance policies issued by Lincoln National Life Insurance Company ("Lincoln") (the "Personal Policies"). His claims for disability benefits were prompted by two accidents, one in 2000 and one in 2007, which, he contended, triggered his entitlement to benefits under the policies. Both insurers refused to pay benefits to Dr. Duda, and he filed suit. Northwest (as the Group Policy Sponsor) and Dr. Donald F. Leatherwood, II (as Dr. Duda's business partner and co-owner of Northwest) likewise sued Standard.

Plaintiffs and Standard have now filed cross-motions for summary judgment on Dr. Duda's claim for benefits under § 502(a)(1)(B) of ERISA (Count I) and the claims by Northwest and Dr. Leatherwood under § 502(a)(3) of ERISA (Count II). In addition, Lincoln moved for summary judgment on Dr. Duda's claims against Lincoln for breach of contract (Count III), badfaith (Count IV), and residual disability benefits (Count V).¹ For the reasons that follow, the Court grants summary judgment for the Defendants.

I. FACTUAL BACKGROUND²

1. Dr. Duda's Business

Dr. Duda and Dr. Leatherwood are board-certified orthopedic surgeons and business partners. They formed their business—Northwest—on March 27, 1998. Northwest is an orthopedic practice through which Dr. Duda and Dr. Leatherwood provide surgical and nonsurgical medical care to patients with orthopedic disorders. Dr. Duda and Dr. Leatherwood each own 50% of Northwest.

On the same day that Dr. Duda and Dr. Leatherwood formed Northwest, they also formed separate entities through which they individually provide medical-legal consulting services. Dr. Duda formed John Duda, M.D., P.C. ("Duda PC") and Dr. Leatherwood formed Donald F. Leatherwood, II, M.D., P.C. ("Leatherwood PC"). Dr. Duda and Dr. Leatherwood each own 100% of their respective consulting businesses, provide independent orthopedic medical examinations ("IMEs") and expert medical testimony through those entities, and serve as the president and the lone employees of their respective enterprises. All three businesses operate out of the same office. Northwest leases the space at no cost to Duda PC and Leatherwood PC, and Northwest employees coordinate the appointments of and payments to Duda PC and Leatherwood PC.

Dr. Duda received no W-2-reportable wages from Northwest, but took 50% of Northwest's profits. Dr. Duda's earnings from Duda PC significantly exceeded the income hereceived from Northwest every year. (Lincoln Statement of Undisputed Material Facts ("Fact Statement") ¶ 16).

2. Dr. Duda's Practice

The parties dispute the nature of Dr. Duda's practice. Dr. Duda contends that "open surgery,"³ especially total joint replacement surgery, is his primary responsibility because that is the procedure around which he built his reputation and practice. Dr. Duda also performed a significant number of arthroscopic surgeries from 1998 to 2009. According to Dr. Duda's cash flow by procedure reports, the considerable majority of in-hospital procedures he performed before August 2007 were non-open procedures, such as arthroscopic surgery, joint aspirations, joint fixations, joint manipulations, and orthopedic injections. From 2002 to 2006, 92% of the 1,684 procedures Dr. Duda performed at the hospital were non-open procedures. (Standard Fact Statement ¶ 23). In addition, Dr. Duda's occupational duties included seeing, treating, and evaluating patients with orthopedic problems, and performing various orthopedic procedures in the office, including joint aspirations, orthopedic injections, fracture treatments, castings, and patient consultations. From 2002 to 2006, Dr. Duda performed 11,285 nonsurgical orthopedic procedures in the office—far exceeding the number of surgical procedures Dr. Duda performed over the same period.

Dr. Duda also performed (and continues to perform) IME work on behalf of Duda PC. Dr. Duda's IME work includes, but is not limited to, physically examining individuals claiming orthopedic injuries, reviewing medical records, preparing IME reports, summarizing his medical findings, and testifying in legal proceedings as an expert orthopedic surgeon. From 2001 to 2006,Dr. Duda generated more than $1.8 million in wages and pension contributions from his IME work—more than 4 times the income he derived from Northwest during the same period. Dr. Duda's billings for Duda PC far exceeded his surgical billings on behalf of Northwest.

The parties agree that from 1998 to 2013, Dr. Duda's overall production as a surgeon diminished. However, the parties present slightly different accountings of Dr. Duda's performance. For example, Dr. Duda claims that he performed 392 procedures in 2004 (including 39 open surgeries and 353 non-open procedures, of which 172 were arthroscopic surgeries) and 330 procedures in 2006 (including 9 open surgeries and 321 non-open procedures, of which 165 were arthroscopic surgeries). Dr. Duda further claims that he performed over 1,000 procedures in 1999 (including 145 open surgeries and 874 non-open procedures, of which 342 were arthroscopic surgeries) and only 160 procedures in 2012 (including zero open surgeries and 42 arthroscopic surgeries). But Lincoln claims that he performed 395 procedures in 2004 (including 40 open surgeries and 355 non-open procedures) and 335 procedures in 2006 (including 8 open procedures and 327 non-open procedures). And in June 2009, in connection with Dr. Duda's claim for disability benefits, Standard concluded that Dr. Duda performed 2,158 orthopedic procedures in 2006 (including 588 surgeries), 2,304 orthopedic procedures in 2007 (including 530 surgeries), and 1,992 orthopedic procedures in 2008 (including 469 surgeries).

3. Dr. Duda's Claims for Benefits

On March 5, 2009, Dr. Duda filed claims for disability benefits. He filed a claim with Standard under the Group Policy, and he filed claims with Lincoln under the Personal Policies. In those claims, he asserted that he was disabled beginning on August 10, 2007 as a result of two accidents: first, he injured his right hand when fell in 2000; second, a boating accident in 2007 caused him to see floaters. Summaries of the material facts relating to each of his claims follow.

A. Standard Insurance Claim

i. The Standard Insurance Policy

Standard issued the Group Policy to Northwest. The Group Policy is covered by ERISA. The Group Policy provides, "If you [(i.e., the insured)] become disabled under the Group Policy, we [(i.e., Standard)] will pay [long term disability ("LTD")] Benefits according to the terms of the Group Policy after we receive Proof of Loss." (STND 642). Proof of Loss is defined as "satisfactory written proof that you [(i.e., the insured)] are Disabled and entitled to LTD Benefits. Proof of Loss must be provided at your expense." (STND 649).

The Group Policy defines "Disability," "Own Occupation," and "Material Duties" as follows:

You are Disabled if you meet one of the following definitions during the period it applies:

A. Own Occupation Definition of Disability;

B. Any Occupation Definition of Disability; or

C. The Partial Disability Definition that applies to you . . . .

Own Occupation means any employment, business, trade, profession, calling or vocation that involves Material Duties of the same general character as your regular and ordinary employment with the Employer. Your Own Occupation is not limited to your job with your Employer.

Material Duties means the essential tasks, functions and operations, and the skills, abilities, knowledge, training and experience, generally required by employers from those engaged in a particular occupation.

(STND 630 (emphasis added)). The Group Policy lists both Northwest and Duda PC as "Employers." (STND 627)).

The Group Policy's Own Occupation Definition of Disability is as follows:

During the Benefit Waiting Period and the Own Occupation Period you are required to be Disabled only from your Own Occupation.

You are Disabled from your Own Occupation if, as a result of Physical Disease, Injury, Pregnancy or Mental Disorder, you are unable to perform with reasonable continuity the Material Duties of your Own Occupation.

(STND 631). For physicians, Own Occupation refers to that physician's "specialty in the practice of medicine." (STND 630)

The Group Policy defines "Benefit Waiting Period" as "the period you must be continuously Disabled before LTD Benefits become payable. No LTD Benefits are payable for the Benefit Waiting Period." (STND 654). The Group Policy defines the "Own Occupation Period" as the period from the end of the Benefit Waiting Period until the end of the Maximum Benefit Period, where the Maximum Benefit Period sets the time when LTD Benefits will no longer be paid to an insured who is Disabled. For Dr. Duda, the Benefit Waiting Period was 180 days. Therefore, Dr. Duda would be entitled to recover LTD Benefits only after he submitted written proof that he was Disabled for a 180-day period.

The Group Policy's "Partial Disability Definition" for Dr. Duda is as follows:

During the Benefit Waiting Period and the Own Occupation Period, you are Partially Disabled when you work in your Own Occupation but, as a result of Physical Disease, Injury, Pregnancy, or Mental Disorder, you are unable to earn the Own Occupation Income Level or more.

Note: You may work in another occupation while you meet the Own Occupation Definition of Disability. However, you will no longer be Disabled when you are able to earn more than your Work Earnings Limit while working in another occupation.

(STND 631). The...