Smith v. Prudential Ins. Co. of Am.

88 F.4th 40

Brian SMITH, Plaintiff, Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant, Appellee.

No. 23-1168

United States Court of Appeals, First Circuit

December 6, 2023

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND [Hon. Mary S. McElroy, U.S. District Judge] George E. Lieberman, with whom Gianfrancesco & Friedemann was on brief, for appellant.

Ian H. Morrison, with whom Seyfarth Shaw LLP was on brief, for appellee.

Before Rikelman, Lipez, and Thompson, Circuit Judges.

RIKELMAN, Circuit Judge.

Brian Smith sued Prudential for breach of fiduciary duty after it terminated his long-term disability benefits under an insurance policy it issued. Although the policy specified a three-year limitations period to file a lawsuit, it also, inexplicably, started the limitations clock on the date Smith was required to submit proof that he was disabled, not on the date Prudential allegedly breached the policy by stopping payment. As a result, the clock had already run out by the time Smith sued.

Smith now appeals from the entry of summary judgment against him on the ground that his lawsuit was filed too late. He asks us to reverse based on three arguments litigated by the parties below but not addressed by the district court, including a potentially winning argument that enforcing the limitations scheme in this case would violate Rhode Island public policy. There are compelling reasons for concluding that the limitations scheme here may indeed run contrary to Rhode Island public policy, and holding so would mean a ruling in Smith's favor. But because we believe that reversing and remanding on that ground arguably would amount to an expansion of Rhode Island law, we certify the public policy question to the Rhode Island Supreme Court.

I. BACKGROUND

A. Relevant Facts¹

Brian Smith, a Rhode Islander, was an accountant and vice president for tax operations of Comverse Technology when he began experiencing symptoms of cognitive decline in 2015. After a neuropsychologist diagnosed Smith with mild cognitive impairment, Smith sought the care of an occupational physician, who determined that Smith could no longer work as a tax professional. Smith left his job on October 31, 2015.

Shortly thereafter, Smith filed a timely claim for benefits under his long-term disability policy with Prudential. Prudential approved his claim and began paying Smith on January 30, 2016. Smith received a monthly benefit of $3,000 for nearly two and a half years until Prudential notified him on May 3, 2018, that his benefits had been terminated effective the next day. After exhausting his right to internal appeals with Prudential, Smith received his final denial notice on August 28, 2019.

Smith's insurance policy does not include a single, stand-alone provision specifying a date by which Smith had to sue Prudential after a denial or termination of benefits. Instead, it includes a mystifying six-step calculation ("the limitations scheme") requiring Smith and other beneficiaries to piece together disparate provisions and information from four documents.² We have previously characterized limitations schemes nearly identical to the one in this case as "labyrinthine" and "designed to confuse." Santana-Díaz v. Metro. Life Ins. Co., 816 F.3d 172, 176 n.3, 181 n.10 (1st Cir. 2016).

The puzzle here begins with this clause in the policy:

You can start legal action regarding your claim 60 days after proof of claim has been given and up to 3 years from the time proof of claim is required, unless otherwise provided under federal law.

(Emphasis added.) On a separate page, the policy states that proof of claim must be submitted "no later than 90 days after your elimination period ends." Still another section of the policy states that an elimination period is a fixed duration during which a beneficiary must show "continuous disability." Under the policy, the elimination period may be 13 weeks or 26 weeks depending on whether the beneficiary is enrolled in an "Option 1" or "Option 2" plan. The fact that Smith was part of an Option 1 plan is specified in yet another, separate document: the letter approving his benefits. So, to sum up the first four steps of the calculation: For Option 1 plan participants like Smith, legal action must be brought within three years of the expiration of the 13-week elimination period, plus 90 days. In total, that is roughly three-and-a-half years from the date the beneficiary ceases working.

The math continues: Two more steps are necessary to calculate the ultimate deadline for filing a lawsuit. When Prudential denies benefits -- or, as for Smith, approves benefits but later terminates them -- the policy affords a beneficiary two opportunities for internal administrative review, described in a separate addendum. First, a beneficiary has 180 days from the date of a denial or termination notice to file an internal appeal, to which Prudential must respond within 45 days. If Prudential denies the initial appeal, then a beneficiary may file a second appeal, again within 180 days, to which Prudential must also respond within 45 days. While Prudential reviews the second appeal (although not the first) the company agrees to toll the limitations period. Hidden within the policy is the fact that although the second appeal is voluntary, the first appeal is mandatory and must be exhausted before a beneficiary can sue.³ Even an accountant could find it challenging to piece this formula together.

We now turn our focus to how the limitations math added up for Smith. Smith ceased work because of his disability on October 31, 2015, starting the clock on his 13-week elimination period, which ended January 30, 2016. His proof of claim was due 90 days later, or by April 29, 2016. So under the policy, not taking into account any internal appeals, Smith's window to sue would have expired three years later, on April 29, 2019.

After initially paying benefits for over two years, Prudential terminated Smith's disability payments effective May 4, 2018. Smith's mandatory first appeal was due 180 days later, on October 31, 2018. He timely filed that appeal on July 2, 2018, and Prudential notified him that it stood by its termination on November 13, 2018. Smith then had another 180 days to file a second, voluntary internal appeal, making that request due May 12, 2019.⁴ He timely sought that review on March 1, 2019, and on August 28, 2019, Prudential reaffirmed its termination.⁵ Note that Prudential's ultimate denial of benefits in August was roughly four months after the deadline to sue indicated by the first four steps of the limitations scheme.

Prudential suggests that after it rejected the second appeal, Smith still had six months to bring suit under the tolling provision that applies to the second, voluntary appeal. The plain language of the policy, however, indicates that Smith only had about eight weeks to sue after Prudential completed its second review.⁶ But although the shorter period available to Smith highlights the unfairness of barring Smith's breach of fiduciary duty claim, the legal arguments he presents on appeal do not turn on the difference.

No provision of the policy addresses the basic fact that a beneficiary does not have a cause of action against their insurer until the insurer denies or terminates benefits. As Smith lays out in his brief, the rub of the limitations scheme is that Prudential can initially approve benefits after the limitations period has already begun to run, then terminate them six months, six weeks, or six days before the confusing limitations scheme expires -- or any time thereafter.

B. Legal Proceedings

Smith sued Prudential for breach of fiduciary duty on March 12, 2021, within three years of when Prudential stopped paying his disability benefits. After Prudential moved to dismiss the case as time-barred, the district court permitted limited discovery on one of Smith's counterarguments: that the Employee Retirement Income Security Act of 1974 (ERISA) governed the policy, making the lawsuit timely. Once discovery concluded, the parties cross-moved for summary judgment on the timeliness of Smith's complaint.

In his motion, Smith argued that ERISA applied to the policy, but he also pursued several state law arguments for why, even if it did not, his breach of fiduciary duty claim was not time-barred. Prudential responded to the substance of each of Smith's arguments, and the district court ultimately granted summary judgment to Prudential on its timeliness defense. But although Smith had opposed Prudential's motion for summary judgment on five separate legal grounds, the district court evaluated only two of them, both related to ERISA, and concluded that Smith had produced no evidence that his policy was governed by ERISA. It did not address Smith's separate state law defenses as to timeliness or his argument that the contract by its express terms is limited by federal law principles.

Smith timely appealed. We have appellate jurisdiction under 28 U.S.C. § 1291 to consider all of Smith's arguments opposing Prudential's motion for summary judgment, including his state law arguments. The district court had diversity jurisdiction to consider those arguments even after finding that Smith's plan was not governed by ERISA. 28 U.S.C. § 1332(a)(1).

Before this court, Smith expressly waives each of the two ERISA-related arguments ruled on by the district court. But he presses the three other preserved arguments that the district court, without explanation, did not reach.⁷ Among these is Smith's argument that enforcing the limitations scheme here to bar him from bringing suit would violate Rhode Island public policy.

II. STANDARD OF REVIEW

We review a district court's grant of summary judgment de novo. Minturn v. Monrad, 64 F.4th 9, 13 (1st Cir. 2023). In doing so, we consider all facts and draw all reasonable inferences from those facts in the light most favorable to the non-moving party, here Smith. Id...