Sivalingam v. Unum Life Ins. Co. of Am.

ARUNAN SIVALINGAM, M.D.

v.UNUM LIFE INSURANCE COMPANY OF AMERICA

NO. 09-4702

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

April 26, 2011

MEMORANDUM

Bartle, C.J.

Plaintiff Arunan Sivalingam, M.D. ("Sivalingam") filed suit against Unum Life Insurance Company of America ("Unum") under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(1)(B). Sivalingam contends that Unum improperly terminated payment of long term disability benefits under an insurance policy issued to Sivalingam's employer. He seeks declaratory and monetary relief. Unum counterclaimed against Sivalingam to recover alleged overpayments of benefits it paid him under the policy.

Before the court are the parties' cross-motions for summary judgment and Unum's motion to strike Sivalingam's reply brief in support of his motion for summary judgment.

I.

Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v.Catrett, 477 U.S. 317, 323 (1986). A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986). Accordingly, the court makes all reasonable inferences from the evidence in the light most favorable to the non-movant. In re Flat Glass Antitrust Litig., 385 F.3d 350, 357 (3d Cir. 2004).

II.

The following facts are undisputed. Sivalingam is a retinal surgeon who practiced medicine with Ophthalmic Subspecialty Consultants, P.C. ("OPC"), now known as Ophthalmic Partners of Pennsylvania ("OPP"). In November 1997, Sivalingam suffered a severe heart attack, and in June 1998, he received a heart transplant. As a result of the transplant, Sivalingam must take daily immunosuppressive drugs that cause him to experience tremors and cramps in his hands. These tremors and cramps interfere to some extent with his ability to perform retinal surgeries.

At the time of Sivalingam's cardiac event, OPC maintained a long-term disability insurance policy with Unum. Sivalingam filed a claim for benefits under this policy, and Unum, acting in its role as plan administrator, determined him to be eligible to receive benefits. Unum began paying Sivalingam a monthly benefit of $22,075.32 on February 11, 1998.

Days after his heart transplant in June 1998, Sivalingam and eleven other physicians formed Main Line SurgeryCenter, LLC ("MLSC"), an entity in which Sivalingam owns a 9.09% interest. Shortly thereafter, in September 1998, Sivalingam sold his ownership interest in OPC, now known as OPP, but resumed part-time employment with it. At that time, Sivalingam executed an employment agreement with OPP under which he would receive a salary of $240,000 and reimbursement of "direct expenses" up to $60,000. Through a series of amendments between 1998 and 2005, OPP reduced Sivalingam's salary to $120,000 and increased his limit for reimbursement of direct expenses to $120,000.¹ From 1998 up until the present, Sivalingam has been a part owner of MLSC and an employee of OPP. He has regularly received income from both entities.

In February 2008, Unum received a call from an anonymous source who reported that Sivalingam and OPP were not being "completely forthright" in reporting Sivalingam's compensation from his employment at OPP. Unum began investigating Sivalingam's income from employment to determine whether he continued to qualify for benefits under the terms of the UNUM disability policy. In May 2008, Unum stopped disbursing payments to Sivalingam because it determined he no longer qualified for benefits under the policy based on the size of his earnings.

Over the next year, Sivalingam took two appeals to Unum's internal appeals department and submitted numerous documents for Unum to review. Sivalingam also provided the opinion of a certified public accountant, who criticized Unum's analysis based on his experience in practice before the IRS and his knowledge of other physicians' compensation structures. Unum reached a final decision in June 2009 that Sivalingam's earnings disqualified him from receiving disability benefits as of January 11, 2004. In the process, Unum concluded that between 1998 and 2008, Sivalingam had received $1,430,128.42 in disability benefits for which he had not been eligible.

Sivalingam filed suit challenging the termination of his benefits. In Counts I and III of his complaint, Sivalingam asks the court to declare that Unum acted arbitrarily and capriciously in terminating his long term disability benefits and requests that the court enjoin Unum from continuing to violate the terms of the policy. Count II contained a claim for all past, present, and future benefits due Sivalingam under the policy.

Unum counterclaimed for the imposition of a constructive trust or an equitable lien on any "identifiable funds containing overpaid [disability benefits]" in the amount of $1,430,128.42. Sivalingam belatedly answered Unum's counterclaim after the parties' cross-motions for summary judgment were fully briefed.

III.

A person is "disabled" within the meaning of the Unum policy if "because of injury or sickness" he or she is unable to "perform each of the material duties of his regular occupation." A person is also disabled within the policy's definition if "because of sickness or injury" he or she is "unable to perform all of the material duties of his [or her] regular occupation on a full-time basis" but "is performing at least one of the material duties of his [or her] regular occupation or another occupation on a part-time or full-time basis; and [earns] currently at least 20% less per month than his indexed pre-disability earnings due to that same injury or sickness." It is undisputed the tremors and cramps Sivalingam experiences due to his pharmaceutical regimen after his heart attack allow him to work only part time as a surgeon.

The disability policy defines a disabled employee's "basic monthly earnings" as the "monthly rate of earnings from the employer in effect just prior to the date disability begins" and "bonuses, but not commissions, overtime pay or other extra compensation." The policy refers to "basic monthly earnings" adjusted for inflation as "indexed pre-disability earnings."

Unum will pay monthly disability benefits up to 70% of an employee's basic monthly earnings with a maximum monthly benefit of $25,000.² Benefits are terminated if the disabledemployee's "current earnings exceed 80% of his indexed pre-disability earnings." Unum terminated Sivalingam's long term disability benefits in May 2008 after its investigation revealed his "current earnings" had surpassed this threshold amount in 2004.

IV.

The parties agree that OPP's long term disability policy with Unum is an employee-benefit plan subject to the terms of ERISA. In a memorandum and order dated July 1, 2010, the court explained that Unum's decision to terminate Sivalingam's disability benefits is reviewed under the deferential "abuse of discretion" standard.³ See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 113 (1989) (quoting 29 U.S.C. § 1133(2)). Under this standard of review, an administrator's decision will be overturned only if it is "without reason, unsupported bysubstantial evidence or erroneous as a matter of law." Miller v. Am. Airlines, Inc., 632 F.3d 837, 845 (3d Cir. 2011) (internal quotations omitted) (quoting Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 45 (3d Cir. 1993)). "The court is not free to substitute its own judgment for that of the [administrator] in determining eligibility for plan benefits." Abnathya, 2 F.3d at 45.

In conducting our review, we limit ourselves to the administrative record, that is, to the "evidence that was before the administrator when [it] made the decision being reviewed." Mitchell v. Eastman Kodak Co., 113 F.3d 433, 440 (3d Cir. 1997); see also Post v. Hartford Ins. Co., 501 F.3d 154, 168 (3d Cir. 2007). We also evaluate the inherent conflict of interest that arises when a plan administrator "both determines whether an employee is eligible for benefits and pays benefits out of its own pocket." Met Life Ins. Co. v. Glenn, 554 U.S. 105, 108 (2008). Yet, "[u]ltimately, we determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together." Miller, 632 F.3d at 845 (internal quotations omitted) (quoting Glenn, 554 U.S. at 117).

In this case we permitted Sivalingam the opportunity to take narrowly-circumscribed discovery to explore the extent of Unum's conflict of interest and any steps Unum may have taken to reduce bias. As we explained, "Discovery is the only way the record can be fully developed on the conflicts issue. Otherwise, we would be handicapped in analyzing all the factors we must consider in deciding whether an abuse of discretion has occurred." Sivalingam v. Unum Life Ins. Co. of Am., No. 09-4702 slip op. at 12 (E.D. Pa. July 1, 2010). Thus, we review here not only Unum's administrative record but also the materials produced in discovery.

V.

Sivalingam maintains that Unum's decision to terminate his benefits was tainted by a structural conflict of interest. As noted above, a plan administrator, such as Unum, which both determines whether an employee is entitled to benefits and also pays those benefits has an inherent conflict of interest. Glenn, 554 U.S. at 112-15. The weight to be given this conflict depends upon both the administrator's history in paying or denying claims and any steps it has taken "to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits." Id.

...