Martinez v. Standard Insurance Company ( 2021 )

Case: 20-10475 Document: 00516043273 Page: 1 Date Filed: 10/05/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
October 5, 2021
No. 20-10475 Lyle W. Cayce
Clerk
Melinda Martinez, widow and heir of Jose Chavez,
Plaintiff—Appellee/Cross-Appellant,
versus
Standard Insurance Company,
Defendant—Appellant/Cross-Appellee.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:18-CV-2013
Before Jones, Southwick, and Engelhardt, Circuit Judges.
Per Curiam:*
Jose Chavez filed for long-term disability benefits under his
employer-sponsored welfare benefit plan. Standard Insurance Company
initially determined that Chavez was entitled to “own-occupation” benefits,
which would last up to 24 months. It made no determination as to
“any-occupation” benefits, which would be provided only after the
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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No. 20-10475
own-occupation-benefits period expired. Before the expiration of the 24
months and before making a determination as to Chavez’s entitlement to
any-occupation benefits, Standard determined that a provision limited his
benefits to 12 months. Chavez sought review of that decision, and Standard
affirmed it. He brought a claim under the Employment Retirement Income
Security Act in federal court. The district court determined that Chavez’s
injury was not subject to the 12-month limitation and also awarded any-
occupation benefits until the date of judgment, holding that Standard had
waived the right to contest any-occupation benefits to that point. Standard
now appeals only the any-occupation-benefits holding. We REVERSE and
REMAND with instructions that the district court remand to the
Administrator for an any-occupation-benefits determination.
FACTUAL AND PROCEDURAL BACKGROUND
Jose Chavez is a former employee of Nix Door & Hardware, Inc.,
through which he participated in an employee welfare benefit plan that Nix
sponsored. The plan provided disability benefits to eligible employees and
was insured by Standard Insurance Company. The plan lists Nix Door &
Hardware as the Plan Administrator and Standard as the Claims
Administrator. 1
The policy provides two different benefits periods, each with different
disability definitions. The “Own Occupation Period” lasts for the “first 24
months for which [long-term disability (“LTD”)] Benefits are paid,” while
the “Any Occupation Period” lasts “[f]rom the end of the Own Occupation
1
Chavez’s brief says that “Standard was ‘the de facto plan administrator.’ See
Archer v. United Techs. Corp., No. 3:07-CV-1485, 2009 WL 561375, at *1 (N.D. Tex.
Mar. 3, 2009).” Standard never refutes this, and both parties seem to assume that a
remand to the administrator would be to Standard rather than to Nix.
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Period to the end of the Maximum Benefit Period.” The any-occupation
period, then, kicks in only after 24 months of benefits have been paid.
A member meets the own-occupation definition of disability if “as a
result of Physical Disease, Injury, Pregnancy, or Mental Disorder,” the
member is (1) “unable to perform with reasonable continuity the Material
Duties of [his] Own Occupation” and (2) he “suffer[s] a loss of at least 20%
in [his] Indexed Predisability Earnings when working in [his] Own
Occupation.” A member meets the any-occupation definition of disability if
“as a result of Physical Disease, Injury, Pregnancy, or Mental Disorder, [the
member is] unable to perform with reasonable continuity the Material Duties
of Any Occupation.”
Importantly, though, the policy excludes all LTD benefits for certain
conditions and limits all LTD benefits for “Other Limited Conditions”
(“OLC Limitation”) to 12 months. The definition of “Other Limited
Conditions,” for which benefits are limited to a maximum of 12 months
(under either definition of disability), includes “carpal tunnel or repetitive
motion syndrome, . . . arthritis, . . . and sprains or strains of joints or
muscles.”
From May to June 2016, Chavez sought medical care for hand pain.
On June 5, he visited the emergency room for continued hand pain, and
surgery was performed on his hand to remove fluid on June 7. The drained
fluid tested positive for methicillin susceptible staphylococcus aureus (staph
infection). Chavez had a second surgery on his wrist in July, draining more
fluid, which again tested positive for staph. His post-operative diagnosis was
septic arthritis and carpal tunnel syndrome. In August, his diagnosis was
noted as “[p]yogenic arthritis, unspecified.” In November, Chavez’s wrist
showed severe arthritic damage, and he underwent two more surgeries as
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treatment; one to remove bone and cartilage and fuse the joint with screws
and another in March 2017 to remove the screws.
Chavez filed a claim for LTD benefits in June 2016. On the
application, his doctor listed the diagnosis as “cellulitis and abscess” of the
right hand. Standard determined that his own-occupation benefits should
run from September 3, 2016 to September 2, 2018 and that his eligibility for
LTD benefits would end the day before he turned 65.
In March 2017, Chavez fell and landed on his right shoulder, and he
sought medical attention. Then, in May, he was in a motor-vehicle accident
in which that same shoulder hit the steering wheel. After the accident, he
learned that he had “full thickness and partial tearing of tendons in his right
rotator cuff.” He had surgery in attempt to repair the rotator cuff in March
2018.
Standard sent a letter to Chavez on June 29, 2017, informing him that
it would investigate to determine if the OLC Limitation applied to his claim
and limited his benefits to 12 months. The letter explained that if the
limitation did apply, Chavez would receive benefits through September 2,
2017, but not after. On February 12, 2018, Standard informed Chavez that it
had determined that Chavez’s injuries, i.e., “right wrist arthritis, right
shoulder sprain/strain and right rotator cuff tear,” fit within the OLC
Limitation. It noted that his file was reviewed by a Physician Consultant to
reach this conclusion. Because he was “only eligible for 12 months of LTD
Benefits and since [he had] already received over 12 months of LTD
Benefits,” Standard informed him that his “claim ha[d] been closed as of the
date of th[e] letter.”
Chavez orally requested that his claim be reviewed by the
Administrator, as he did not believe “his shoulder pain or hand pain should
be considered limited conditions.” In March 2018, Standard sent Chavez a
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letter indicating that the Administrative Review Unit separately reviewed
and affirmed the prior determination that Chavez’s injuries fit within the
OLC Limitation.
On August 2, 2018, Chavez filed suit in federal district court under
the Employment Retirement Income Security Act (“ERISA”), 29 U.S.C.
§ 1132(a)(1)(B), arguing that Standard’s OLC Limitation determination
should be overturned and that Chavez should receive benefits from February
13, 2018 to the date of judgment plus prejudgment interest. The district court
conducted a “trial on the papers, limited to the administrative record[,]. . .
supporting affidavits[, and] deposition excerpts.”
The district court held that Chavez’s wrist condition did not fall
within the plan’s OLC Limitation. Further, the court concluded that the
plain meaning of “arthritis” that was used in the OLC Limitation did not
include the infection-caused damage to Chavez’s wrist, though technically it
was a species of arthritis. Rather, the “average plan participant,” see 29
U.S.C. § 1022(a), would understand arthritis to refer to the degenerative
joint disease osteoarthritis.
The district court also held that Standard was required to prove that
either the rotator-cuff injury or the carpal-tunnel syndrome was a but-for
cause of the disability; Standard had not met that burden. Thus, Chavez was
entitled to LTD benefits. It then held that Chavez was entitled to any-
occupation benefits through the month of final judgment, holding “Standard
ha[d] waived its right to request evidence of ‘Any Occupation’ disability so
far, [but] Standard should [not] be precluded from requesting such evidence
in the future.” It rejected Standard’s motion to amend findings, for a new
trial, and to modify or correct the judgment reiterating that though its ruling
did not “hold or find that Chavez was or is entitled to any occupation
benefits[, it] simply held that by failing to initiate any administrative action
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by the time of judgment, Standard ha[d] waived the right to a retrospective
administrative determination through judgment.”
The issue in this appeal arises from the remedy the district court
awarded Chavez. Standard argued that if the district court determined the
OLC Limitation applied, it should remand to the administrator for Standard
so it could decide initially whether Chavez met the any-occupation definition
of disability. Chavez argued that he should be awarded past benefits through
the date of judgment as well as future benefits. Instead, the district court held
that Standard waived its right “to request evidence of ‘Any Occupation’
disability so far, [but] Standard should [not] be precluded from requesting
such evidence in the future.”
Standard filed a motion to amend findings, for a new trial, and to
modify or correct the judgment, pursuant to Federal Rules of Civil Procedure
52, 59, and 60. In its motion, Standard argued that the court could award
benefits only through the own-occupation period, but it had to remand for an
administrative determination of the any-occupation period before it could
award benefits for that period. The district court rejected this argument. It
clarified that its ruling held only that Standard waived its right to a
retrospective administrative determination because it did not initiate
administrative action before judgment.
Standard filed a notice of appeal from the final judgment two days
after the motion to amend, arguing that the district court erred by not
remanding for the Administrator to decide first whether Chavez was entitled
to any-occupation benefits. Chavez cross-appealed, arguing that he is
entitled to LTD benefits from the district court’s May 2020 final-judgment
order through the appeal.
This court was notified in early March 2021 that Chavez had died. His
widow, Melinda Martinez, has been substituted as a party to the appeal.
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DISCUSSION
Standard appeals only the district court’s holding that it waived its
right to contest Chavez’s entitlement to any-occupation benefits to that
point, leaving out the district court’s holding as to the OLC Limitation.
Chavez cross-appeals, arguing that the court should award any-occupation
benefits through the date the appeal becomes final rather than just through
the date of the district court’s order.
The district court agreed with Chavez, stating that “by failing to
initiate any administrative action by the time of judgment, Standard has
waived the right to a retrospective administrative determination through
judgment.” Waiver, all parties agree, is “the voluntary or intentional
relinquishment of a known right.” Pitts ex rel. Pitts v. Am. Sec. Life Ins. Co.,
931 F.2d 351, 357 (5th Cir. 1991).
The district court held that because Standard “never gave notice to
Chavez that it was denying benefits because Chavez did not meet the
definition of ‘any occupation’ disability,” it could not “now . . . assert that
basis for denial.” It noted that ERISA’s written-notice requirement
supported its waiver holding.
ERISA requires that Standard “set[] forth the specific reasons for [a]
denial” of benefits. See 29 U.S.C. § 1133(1). “[T]he plan administrator has
the obligation to identify the evidence in the administrative record and . . .
the claimant may then contest whether that record is complete.” Vega v.
Nat’l Life Ins. Servs., Inc., 188 F.3d 287, 299 (5th Cir. 1999) (en banc),
overruled on other grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008).
The regulations provide more detail as to what is required, including specific
reasons for the determination and references to the applicable plan
provisions. See 29 C.F.R. § 2560.503-1(g).
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On requiring specific reasons for determination, the en banc Fifth
Circuit has explained: “Our motivating concern here is that our procedural
rules encourage the parties to resolve their dispute at the administrator’s
level.” Vega, 188 F.3d at 300. Further, “ERISA requires that specific
reasons for denial be communicated to the claimant and that the claimant be
afforded an opportunity for full and fair review by the administrator.”
Schadler v. Anthem Life Ins. Co., 147 F.3d 388, 393 (5th Cir. 1998) (quotation
marks omitted) (quoting Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 688
(7th Cir. 1992)).
We agree with Standard that our decision in Schadler v. Anthem Life
Insurance is a helpful comparison, though not directly on point. There, the
administrator had determined that the plaintiff was not entitled to benefits
on behalf of her husband because his policy had never gone into effect due to
an error with the paperwork. Id. at 391. Following that determination, the
plaintiff filed an ERISA suit in federal court, where the defendant–insurer
argued for the first time that even if the policy was effective, several
exclusions in the policy excluded coverage. Id. at 392. This court rejected
the plaintiff’s argument that “the administrator ha[d], by determining that
[the husband] was not covered by the . . . Policy, waived the right to interpret
any particular provisions of the . . . Policy once it ha[d] been shown that [the
husband] was in fact covered.” Id. at 369–97. We distinguished the situation
presented in Schadler from one where “the administrator asserted one plan
exclusion at the administrative level and trial counsel then bolstered the
administrator’s position before the district court with other exclusions”
where a waiver holding might be warranted. Id. at 396.
A Seventh Circuit decision is also helpful. See Pakovich v. Broadspire
Servs., Inc., 535 F.3d 601 (7th Cir. 2008). The court rejected a rule that
“would require [administrators] denying benefits under an ‘own occupation’
standard to also spend their resources evaluating participants under the ‘any
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occupation’ standard, solely in anticipation of a possible reversal on the ‘own
occupation’ issue on appeal.” Id. at 605. Such an approach was
“unworkable.” Id. A finding that the participant was ineligible for own-
occupation benefits was necessarily a conclusion as to any-occupation
benefits, and “[r]equiring this further analysis would be impractical and
redundant.” Id. “[W]hen the plan administrator has not issued a decision
on a claim for benefits that is now before the courts, the matter must be sent
back to the plan administrator to address the issue in the first instance.” Id.
at 607.
Here too, Standard’s OLC Limitation determination made analysis of
entitlement to any-occupation benefits unnecessary. Once the administrator
found that the OLC Limitation provided benefits only for 12 months, there
was no need to analyze next if Chavez was entitled to any-occupation benefits
that would begin only after the first 24 months of benefits.
Because the district court held that the OLC Limitation determination
was erroneous, and that decision has not been appealed, we remand to the
administrator to determine Chavez’s entitlement to any-occupation benefits.
We reject Chavez’s invitation to remand to the district court to determine
the amount of any-occupation benefits to which Chavez is entitled. Our de
novo review of the administrator’s decision does not eliminate the need for
an initial administrative decision. De novo review is still a review. We should
not circumvent “the procedure provided by the statute . . . [by] making the
initial benefits decision ourselves.” See Schadler, 147 F.3d at 398.
We REVERSE the district court’s waiver holding, VACATE the
district court’s award of any-occupation benefits and REMAND to the
district court with instructions to remand to the Administrator to make an
initial determination of Chavez’s any-occupation benefits.
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