Relator v. Group, 09-1606.

613 F.3d 300

UNITED STATES ex rel. Patrick LOUGHREN, Relator, Appellee,

v.UNUM GROUP, Defendant, Appellant.

No. 09-1606.

United States Court of Appeals,First Circuit.

Heard Feb. 1, 2010.

Decided July 29, 2010.

William J. Kayatta, Jr., with whom Catherine R. Connors, Geraldine G. Sanchez, Mark Porada and Pierce Atwood LLP were on brief for appellant.

Colette G. Matzzie with whom Claire M. Sylvia, Peter B. Krupp, Phillips & Cohen LLP and Lurie & Krupp LLP were on brief for appellee.

Before TORRUELLA, Circuit Judge, SOUTER, Associate Justice, ^* and STAHL, Circuit Judge.

STAHL, Circuit Judge.

Patrick J. Loughren (“Relator”) brought suit under the qui tam provisions ¹ of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., alleging its violation by Unum Group (“Unum”) and co-defendant Genex Services, Inc. (“Genex”). ² On appeal, Unum challenges the district court's denial of its motion for judgment as a matter of law, the court's exclusion of certain evidence, and the court's instructions to the jury on the element of scienter. After a thorough review, we affirm the district court's denial of Unum's motion for judgment as a matter of law, but find that the court abused its discretion in excluding certain evidence that is highly relevant to one of the elements necessary to prove Unum's liability. Consequently, we vacate and remand for a new trial.

I. Background

Unum is a provider of long term disability insurance (“LTD”) policies. In his complaint as ultimately amended, Relator asserted that Unum and Genex were liable under the FCA for knowingly causing their insureds to file baseless applications for Social Security Disability Insurance (“SSDI”), thereby burdening the Social Security Administration (“SSA” or “Agency”) with the time and expense required to deny such claims. Under 31 U.S.C. § 3730(b)(4), the government declined to prosecute the case.

At issue at trial were seven SSDI applications made by six different Unum LTD benefits recipients. At the conclusion of evidence, the district court denied Unum's motion for judgment as a matter of law, save for a claim relating to one individual to whom the SSA belatedly awarded SSDI benefits.

The jury returned a verdict against Unum on two of the remaining claims, those filed by Unum LTD recipients named Jennine and George, awarding damages of $425 “per proven false claim,” for a total of $850. With respect to the remaining four claims, the jury returned a verdict in Unum's favor on three and deadlocked on the fourth. The district court denied Unum's renewed motion for judgment as a matter of law.

Rather than proceeding to try the Relator's claims relating to 55 additional allegedly false claimants, the district court directed entry of final judgment against Unum on the SSDI applications filed by George and Jennine, trebling the $850 in damages to $2,550 and awarding the maximum statutory penalty of $11,000 for each of the two claims as provided under the FCA, 31 U.S.C. § 3729(a); 28 C.F.R. § 85.3(a)(9), for a total award of $24,550. ³

II. Facts

A. Applying for SSDI

To receive disability insurance benefits under the Social Security Act, an applicant must be suffering from a “disability,” 42 U.S.C. § 423(a)(1), that is, an “inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” 42 U.S.C. § 423(d)(1)(A). The applicant's physical or mental impairment must be

of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work.

42 U.S.C. § 423(d)(2)(A). An applicant is deemed able to engage in “substantial gainful activity” if he is capable of doing any job that pays above a specific dollar amount set by SSA regulations. At the time of trial, that amount was $940 per month.

To obtain a disability determination by the SSA, an individual must submit several related forms, including an Application for Disability Insurance Benefits (Form SSA- 16-F6) (the “application form”) and a Disability Report-Adult (Form SSA-3368-BK) (the “disability report”). The application form asks the applicant to provide basic background information, employment history, and family information. In question five, it asks the applicant to specify the time period during which the applicant has been “unable to work.” ⁴ The form instructs applicants that they will be responsible for providing “medical evidence showing the nature and extent of [their] disability.” Though the application form does not include a definition of “disability,” the disability report explains how the term “disability” is defined by the Agency. It states:

You will be considered disabled if you are unable to do any kind of work for which you are suited and if your disability is expected to last (or has lasted) for at least a year or to result in death. So when we ask, “when did you become unable to work,” we are asking when you became disabled as defined by the Social Security Act.

The application form explains that an applicant has the responsibility to “promptly notify” the SSA of certain events which “may affect [the applicant's] eligibility or disability benefits as provided in the Social Security Act.” For example, if the applicant “go[es] to work,” or if his “medical condition improves so that [he] would be able to return to work, even though [he has] not yet returned to work,” he must report that information to the Agency. The application form further requires the applicant's signature below the following warning:

I know that anyone who makes or causes to be made a false statement or representation of material fact in an application or for use in determining a right to payment under the Social Security Act commits a crime punishable under Federal law by fine, imprisonment or both. I affirm that all information I have given in this document is true.

B. Unum's Practices

Unum's LTD polices typically provide partial income replacement to insureds who are unable to perform the material and substantial duties of their “own occupation.”

Evidence was introduced at trial that most of Unum's LTD group policies had a 180-day elimination period, before which an insured was not eligible for Unum's LTD benefits. At the end of that 180-day period, Unum assessed whether a claimant was eligible to receive benefits under the claimant's LTD insurance policy. Unum made that assessment using an “own occupation” standard for eligibility, asking whether the claimant was “able to perform [the] occupation that [he was] doing at the date that [he] first had [his] disability.”

After the expiration of the “own occupation” period under the policy (typically two years), a claimant needed to show that he was incapable of performing “any occupation” in order to continue to receive benefits. To assess whether a claimant was disabled under its “any occupation” standard, Unum would ask whether, based on the claimant's training, education, and experience, and given his restrictions and limitations, the claimant was capable of working in an occupation that could pay him sixty percent or more of his predisability earnings. SSA's evaluation of whether an applicant is capable of performing “substantial gainful activity” is similar, and, in fact, was referred to as “the Social Security Administration's ‘any occupation’ eligibility requirement” at trial; however, Unum's “any occupation” analysis is less rigorous than the SSA's “any occupation” analysis. When the SSA evaluates whether an applicant is capable of performing “substantial gainful activity,” it does not limit the sphere of jobs which the applicant is capable of doing based on the applicant's predisability earnings.

The Unum policies at issue here provide that Unum could reduce the amount it paid to an insured by, among other things, the amount the insured received or was entitled to receive as disability payments under the SSA. Under the language of Unum's insurance contract, an insured need not have actually received (or even applied for) an SSDI award in order for Unum to deduct the estimated amount of the award. Evidence at trial suggested that Unum had a general practice of requiring claimants seeking LTD benefits to file an application for SSDI as soon as they had been disabled for six months. ⁵ At that point, Unum would send claimants a “Payment Option Form,” which explained that the claimant should apply for SSDI, and while his application was pending, he could choose to (1) have approximately 50% of his Unum LTD insurance benefits withheld as an offset against the award Unum estimated he was entitled to receive from the SSA; or (2) receive full benefits with the understanding that if he were awarded SSDI retroactively, he would owe an overpayment to Unum. If a claimant decided not to apply for SSDI, Unum could, and did, exercise its power to immediately reduce the claimant's benefits by the amount of the SSDI award Unum estimated he was entitled to receive.

Though Unum was familiar with the difference between its own “own occupation” standard and the SSA's more rigorous “any occupation” standard, Unum made no efforts to determine whether a claimant met the SSA's “any occupation” standard of eligibility before telling the individual that his benefits would be cut if he did not apply for SSDI.

1. George

George was a heavy equipment operator who was fifty-three at the time he applied for long-term disability benefits. For years, George had been legally blind in his left eye due to a detached retina from an old football injury. He filed...