OLIVER (LEAMON LORNE) VS. SUN LIFE FINANCIAL DISTRIBUTORS, INC.Annotate this Case
RENDERED: APRIL 2, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
LEAMON LORNE OLIVER
ON REMAND FROM THE KENTUCKY SUPREME COURT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE STEPHEN K. MERSHON, JUDGE
ACTION NO. 05-CI-002964
SUN LIFE FINANCIAL
DISTRIBUTORS, INC., (F.K.A.)
SUN LIFE INSURANCE COMPANY
** ** ** ** **
BEFORE: LAMBERT AND NICKELL, JUDGES; HENRY,1 SENIOR JUDGE.
LAMBERT, JUDGE: Leamon Oliver appealed the Jefferson Circuit Court’s
judgment construing the applicability of the Employee Retirement Income Security
Senior Judge Michael L. Henry, sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110 (5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
Act of 1974 (hereinafter ERISA) to a disability insurance policy through Sun Life
Financial Distributors, Inc. (hereinafter Sun Life); the applicable standard of
review; and whether he is entitled to long-term disability benefits from Sun Life.
This Court issued an opinion addressing the applicability of ERISA, and this case
is now before us on remand from the Kentucky Supreme Court with directions to
address the proper standard of review for Oliver’s claim for benefits and to
determine whether, under this standard of review, Oliver was entitled to benefits.
For the reasons set forth herein, we now hold that the applicable standard of review
is whether Sun Life’s denial of benefits was arbitrary and capricious. Because Sun
Life’s determination was supported by a reasonable explanation, it was not
arbitrary and capricious and Oliver was therefore not entitled to benefits.
Leamon Oliver began working at Link-Belt Construction as a
machinist and material handler in February 1996. Link-Belt offered its employees
a comprehensive benefits package, including the opportunity to enroll in a policy
of group long-term disability insurance held by Link-Belt and carried by Sun Life.
Oliver enrolled in the insurance program and filed for disability benefits through
Sun Life on or around January 5, 2002, when he stopped working and had a total
surgical replacement of the right knee.
Oliver’s policy through Sun Life provided that a claimant is initially
deemed “disabled” if he cannot perform the material and substantial duties of his
“own occupation.” Once this determination is made, the claimant can receive
benefits under that definition for a maximum period of eighteen months.
Thereafter, a claimant’s “disability” is measured with reference to his ability to
perform “any gainful occupation.”
At the time of his knee replacement, Oliver identified Drs. Norman
Ellingsen and Frank Burke of Bluegrass Orthopedics as his treating physicians.
Link-Belt stated that Oliver’s position required him to stand for five hours, walk
for one hour, drive for thirty minutes, and sit for ninety minutes in a typical
workday. It also required him to bend, stoop, kneel, climb, and to lift and carry as
much as forty pounds. Dr. Ellingsen indicated that Oliver would be unable to
perform these work activities for four to six months. Sun Life concluded that
Oliver was unable to perform the material and substantial duties of his position and
approved his claim.
For the next eighteen months, Sun Life paid Oliver disability benefits
based on its belief that he could not, because of his knee problems, perform the
material and substantial duties of his own occupation. Sun Life continued to
obtain records from Bluegrass Orthopedics, opinions from medical consultants,
and functional capacity evaluations to monitor Oliver’s physical condition and
assess his ability to work. On January 7, 2004, Sun Life notified Oliver that it was
terminating his benefits because he was not totally disabled from performing “any
gainful occupation” for which he was reasonably qualified. Termination was
effective January 4, 2004, when the standard for determining whether Oliver was
“disabled” within the meaning of the policy changed from “own occupation” to
“any gainful occupation.”
Oliver filed an administrative appeal of Sun Life’s decision. On
appeal, he provided additional records for Sun Life’s consideration, including files
from Bluegrass Orthopaedics, St. Joseph Hospital, Paint Lick Family Clinic,
Lexington Diagnostic Center, McClellan Chiropractic, independent medical
examinations he secured from Drs. James Templin and David Bosomworth, and a
vocational report from Ralph Crystal. These records were intended to convince
Sun Life that Oliver suffered from knee problems, coupled with newly raised
conditions of the neck, back, shoulders, and fingers which prevented him from
performing “any gainful occupation.”
Sun Life reviewed the entire administrative record and engaged an
orthopedic surgeon to review the new materials Oliver submitted. Apparently Sun
Life also arranged for a second orthopedist to physically examine Oliver, but
Oliver did not submit to that examination. Based on the administrative record, Sun
Life declined to reinstate benefits. Oliver then sued Sun Life in Jefferson Circuit
Court, asserting ERISA violations and state law claims. Oliver also sought
reinstatement of his benefits effective January 5, 2004, including prejudgment
interest and attorney’s fees. Sun Life removed the case to federal district court,
alleging that Oliver’s claims were governed by ERISA.
By order dated November 7, 2005, the district court remanded back to
the Jefferson Circuit Court, finding that ERISA was not applicable. The district
court applied the three-step factual inquiry articulated in Thompson v. American
Home Assurance Company, 95 F.3d 429 (6th Cir. 1996), in order to determine
whether a given policy or plan constitutes an ERISA plan.
First, the court must apply the so called “safe harbor”
regulations established by the Department of Labor to
determine whether the program was exempt from
ERISA. Second, the court must look to see if there was a
“plan” by inquiring whether “from the surrounding
circumstances a reasonable person [could] ascertain the
intended benefits, the class of beneficiaries, the source of
financing, and procedures for receiving benefits.”
Finally, the court must ask whether the employer
“established or maintained” the plan with the intent of
providing benefits to its employees. [Citations omitted].
Id. at 434-435.
Thompson also provides the requirements for application of the “safe
harbor” provision as defined by Department of Labor regulation 29 CFR 2510.31(j). A policy will be exempted under ERISA only if all four of the “safe harbor”
criteria are satisfied: (1) The employer makes no contribution to the policy; (2)
Employee participation is completely voluntary; (3) The employer’s sole functions
are, without endorsing the policy, to permit the insurer to publicize the policy to
employees, collect premiums through payroll deductions and remit them to the
insurer; and (4) The employer receives no consideration in connection with the
policy other than reasonable compensation for administrative services actually
rendered in connection with payroll deduction. Id. at 435.
The district court found that Link-Belt did not endorse, sponsor, or
manage the plan, based on testimony from Oliver via affidavit; the affidavit of
Andrea Elder, the Link-Belt Construction Equipment Company Compensation and
Benefits Analyst; and the language of the policy itself. The court found that Oliver
paid for 100% of the cost of the policy; that Sun Life managed the claims and
exercised discretion with respect to coverage; and that Link-Belt made it clear that
participation was completely voluntary. The court also found that the filing of an
IRS form 5500, without more, was insufficient to compromise the otherwise clear
employer neutrality. Thus, the court found that ERISA did not apply and
remanded back to the Jefferson Circuit Court.
On remand, the trial court allowed discovery on the preemption issue
and ultimately ruled that Oliver’s state law claims were preempted by ERISA
because Link-Belt had endorsed the policy. The court applied an arbitrary and
capricious standard of review and upheld Sun Life’s decision terminating Oliver’s
benefits. Oliver now appeals the trial court’s ruling on preemption, its use of the
arbitrary and capricious standard in evaluating Sun Life’s decision, and its
affirmation of Sun Life’s decision terminating his benefits.
In its order dated November 6, 2006, the Jefferson Circuit Court
disagreed with the United States District Court and found that Link-Belt endorsed
the Sun Life disability plan, and thus the plan was subject to ERISA. In doing so,
it granted partial summary judgment to Sun Life. We review grants of summary
judgment to determine whether the trial court properly found that there were no
genuine issues as to any material fact and that the moving party was entitled to
judgment as a matter of law. Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App.
Oliver argues that the parties agreed that three of the four “safe
harbor” provisions weigh in favor of ERISA’s inapplicability. He finds error with
the court’s analysis of the endorsement prong of the safe harbor provisions. That
prong addresses whether “the employer’s sole functions are, without endorsing the
policy, to permit the insurer to publicize the policy to employees, collect premiums
through payroll deductions and remit them to the insurer.” Thompson, 95 F.3d at
435. Oliver then argues that under Thompson, endorsement should be judged from
the perspective of an employee, with inquiry into the facts that the employee would
have known verses what the company did outside of the employee’s knowledge.
In other words, “emphasis should be placed on those circumstances which would
allow an employee to reasonably conclude that the employer had compromised its
neutrality in offering the plan.” Id. at 435 (citing 29 C.F.R 2510.3-1(j)). Oliver
argues that his testimony and that of another employee was that purchase of longterm disability benefits was voluntary and that Link-Belt did not prefer one way or
the other whether employees purchased the plan. He argues that the trial court’s
focus on the title “Link-Belt Long-Term Disability Insurance Plan” is misguided
because Sun Life clearly prepared the booklet and a reasonable employee could not
view the booklet as an offering from Link-Belt.
Oliver also argues that he received no assistance from Link-Belt in
filing his claim for long-term disability (hereinafter LTD) benefits. Further, Oliver
points out that Link-Belt’s benefit analyst, Andrea Elder, acknowledged Link-Belt
did not exercise any decision making power with regard to the Sun Life policy and
that Mark Kreyenbuhl, Director of Human Resources, testified Link-Belt did not
advocate in support of its employees regarding claims with Sun Life and did not
have any input about whether an employee should purchase coverage. Finally,
Oliver argues that because the federal court had already determined ERISA was
inapplicable, it was improper for the trial court to find otherwise.
Sun Life argues that from the perspective of an objectively reasonable
employee, the evidence overwhelmingly demonstrates that Link-Belt endorsed the
policy and that Oliver disregarded clear policy language and ignored
overwhelming evidence of Link-Belt’s involvement in the creation of the policy.
Sun Life argues that the key consideration in determining whether an employer has
“endorsed” an insurance policy for purposes of ERISA is the level of the
employer’s involvement in the creation and administration of the policy.
Thompson, 95 F.3d at 436-437. It then argues that there are several factors that
suggest an employer has played a meaningful role in the creation or administration
of a policy, and therefore endorsed it. Those factors are:
The employer controls the selection of the insurance
The employer influences the terms of the policy.
The employer serves as Plan Administrator or Plan
Sponsor, or files a Form 5500 with the Internal Revenue
There is a summary plan description for the policy, and it
refers to ERISA and/or contains an explanation of an
employee’s rights under ERISA.
The SPD gives the employer, as Plan Administrator, the
authority to control and manage the operation and
administration of the policy.
The insurance policy is known by a name that references
the employer’s name.
Communications about the policy to employees are
conducted or written by the employer, or bear the
Id. (Citations omitted). Sun Life argues that, unlike Oliver suggests, endorsement
can be decided as a matter of law, and Oliver’s contention to the contrary is
premised on Thompson’s conclusion that an issue of fact existed in that case. Sun
Life quotes Thompson again, which states:
The question of endorsement vel non is a mixed question
of fact and law. In some cases the evidence will point
unerringly in one direction so that a rational fact finder
can reach but one conclusion. In those cases,
endorsement is a question of law . . . . In other cases, the
legal significance of the facts is less certain, and the
outcome will depend on the inferences that the fact finder
chooses to draw . . . . In those cases, endorsement
becomes a question of fact. [Citations omitted].
Id. at 437.
In the case at bar, Sun Life argues that the trial court correctly decided
the issue as a matter of law because the facts overwhelmingly demonstrate
endorsement. Sun Life argues that the record reflects that Link-Belt controlled the
selection of insurance carriers for the policy and dictated terms of the policy,
including how many hours an employee had to work in order to be eligible for
coverage under the policy, and determined the formula for calculating benefits.
Sun Life also points out that Link-Belt communicated the availability of the policy
and encouraged employees to seriously consider enrolling, and that it included
information about the policy in a Link-Belt Benefits Manual that it prepared
describing all benefits it offered employees. It argues that Link-Belt distributed a
booklet prepared by Sun Life, which included a statement of ERISA rights, refers
to the policy as the “Link-Belt Long-Term Disability Plan” and identifies LinkBelt as the plan administrator. Most importantly, Sun Life argues that Link-Belt
assists employees in collecting paperwork necessary to file a claim and calls Sun
Life on their behalf to discuss claim status, though it may not have done so in
Regarding the federal district court’s decision that ERISA did not
apply, Sun Life argues that the district court had very limited information to base
its decision on, namely the affidavits of Oliver and two other employees, and that
after the court remanded to the Jefferson circuit court, the circuit court allowed
discovery which provided more insight into the matter. Thus, the federal court’s
remand does not preclude the trial court from determining that Oliver’s claims are
preempted by ERISA.
We agree with Sun Life that there are many factors to be considered
when determining whether an employer “endorsed” a policy for purposes of
ERISA. Furthermore, in the instant case we agree that Link-Belt endorsed the
policy at issue and that from the perspective of an objective, reasonable employee,
Link-Belt was involved in the policy throughout selection and administration to
such an extent that it did not remain neutral, thus placing it under the purview of
ERISA. Not only did Link-Belt choose the policy, it was named as the Plan
Administrator, filed the applicable tax forms, provided employees with voluminous
information regarding the policy, and most importantly, assisted employees with
filing claims and followed up on such claims. We agree that Oliver simply ignored
this fact, which is contrary to the record in this case. Thus, the trial court properly
determined that Link-Belt endorsed the policy and granted Sun Life partial
summary judgment accordingly.
Subsequent to granting partial summary judgment to Sun Life, the
trial court determined the applicable standard of review for Oliver’s claims in an
order dated March 26, 2007. Oliver now argues that the trial court improperly
applied the arbitrary and capricious standard of review and that the appropriate
standard of review was de novo.
An ERISA participant’s claim against a plan fiduciary based on the
denial of benefits is brought under 29 U.S.C. §1132(a). In such cases, the court
reviews de novo the plan fiduciary’s decision denying benefits unless the plan
gives the plan fiduciary discretionary authority to construe and apply the plan
provisions, in which case the court applies an arbitrary and capricious standard.
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103
L.Ed.2d 80 (1989). We agree with Sun Life and the trial court that the policy at
issue in this case contains language sufficient under applicable case law to confer
discretionary authority on Sun Life. Specifically, the plan requires that “proof
must be satisfactory to Sun Life” and further provides:
The Plan Administrator has delegated to Sun Life its
entire discretionary authority to make all final
determinations regarding claims for benefits under the
benefit plan insured by this Policy. This discretionary
authority includes, but is not limited to, the determination
of eligibility for benefits, based upon enrollment
information provided by the Policyholder, and the
amount of any benefits due, and to construe the terms of
Any decision made by Sun Life in the exercise of this
authority, including review of denials of benefit, is
conclusive and binding on all parties. Any court
reviewing Sun Life’s determinations shall uphold such
determination unless the claimant proves that Sun Life’s
determinations are arbitrary and capricious.
Oliver does not challenge Sun Life’s status as a fiduciary and acknowledges that
the policy contained discretionary language. Instead, he contends the insurance
policy is not a plan document, so the plan has not conferred discretionary authority.
Case law recognizes that an insurance policy is a plan document. See Gill v. Moco
Thermal Indus., 981 F.2d 858, 860 (6th Cir. 1992). In fact, an insurance policy
describing the benefits afforded a participant in an ERISA plan is precisely the
type of plan document courts look to in determining whether a plan fiduciary has
the type of discretion that necessitates application of the arbitrary and capricious
standard of review. Pflaum v. Unum Provident Corp., 340 F.Supp.2d 779, 782-783
(E.D. Mich. 2004) (“[ERISA] governs employee welfare benefit plans. Plaintiff's
insurance policies were established and maintained by Plaintiff's employer,
therefore they are employee welfare plans covered by ERISA.”). In the instant
case, the insurance policy afforded Sun Life discretionary authority and, therefore,
an arbitrary and capricious standard of review applies.
The arbitrary and capricious standard is a deferential standard, and a
reviewing court must uphold a plan administrator’s decision if the decision is
rational in light of the plan’s provisions. Gismondi v. United Techs Corp., 408
F.3d 295, 298 (6th Cir. 2005). “When it is possible to offer a reasoned explanation,
based on the evidence, for a particular outcome, that outcome is not arbitrary or
capricious.” Davis v. Ky. Fin. Co. Ret. Plan, 887 F.2d 689, 693 (6th Cir. 1989)
(internal quotation marks and citation omitted). The fact that a contrary decision
could also be reached does not afford a basis to overturn the plan administrator’s
decision. Whitehead v. Federal Exp. Corp., 878 F.Supp. 1066, 1070 (W.D. Tenn.
A review of the record indicates that Sun Life’s decision to terminate
Oliver’s benefits was supported by reasonable explanation and, thus, was not
arbitrary and capricious. Therefore, we find no error in the trial court’s decision to
uphold Sun Life’s determination. When Oliver first applied for disability benefits,
he was working in a position that regularly required him to stand and walk; lift and
move up to seventy pounds; climb, balance, bend, stoop, crouch, and kneel. The
information then available to Sun Life indicated Oliver had osteoarthritis of the
knees, a condition which ultimately required the total replacement of both knee
joints. Oliver’s treating physician indicated he could not perform those tasks while
awaiting and recovering from surgery, and Sun Life did not dispute this opinion.
Thus, Sun Life paid Oliver benefits while he recovered from surgery on his right
and then his left knee.
However, the medical evidence indicated it was more than reasonable
to anticipate a patient who experienced no complications to return to sedentary
work three months after total knee replacement surgery. Medical evidence
indicated that 97% of knee replacement candidates do very well and can return to
sedentary work absent a medical reason to explain why they cannot perform such
work. Thus, it was reasonable for Sun Life to expect Oliver would eventually be
capable of returning to work.
Further, Sun Life communicated to Oliver that as of January 4, 2004,
he would only be entitled to benefits if he was incapable of performing “any
gainful occupation” as opposed to his previous, more physically demanding job.
Sun Life asked Oliver for information about his work history, training and
education, and for statements from physicians regarding his physical ability to
work under this standard. By January 4, 2004, Sun Life received medical records
indicating that Oliver had osteoarthritis of the knees and had undergone surgery to
replace both knees, with the last surgery occurring in April 2003. There was no
suggestion that he had any other physical condition affecting his ability to perform
Sun Life’s medical consultant reviewed the records, observed that
Oliver was progressing toward recovery and that there was no evidence of any
complications such as infection of the surgical site or dislocation of the new joint.
There being no evidence of any complications or problems, Sun Life’s medical
consultant opined the “very limited activity” imposed by Dr. Ellingsen was not
Having reviewed the available evidence, Sun Life determined that
Oliver’s osteoarthritis of the knees—the only physical condition it had any reason
to believe he was experiencing—would not prevent him from performing
sedentary work. On appeal of Sun Life’s decision, Oliver provided Sun Life with
additional medical records from physicians with whom he had treated, along with
opinions from consulting doctors and a vocational analyst. The new material
established what Sun Life already knew—that Oliver had osteoarthritis of the
knees. However, the records did not explain why osteoarthritis would render him
unable to perform even sedentary work. The new materials did indicate that Oliver
had occasionally complained about his shoulder, back, and hands. Nothing in the
materials, however, suggested that these occasional complaints rendered him
unable to perform “any gainful occupation.”
Given that Sun Life had no reason to believe that Oliver could not
perform sedentary work, their determination that he was not incapable of
performing “any gainful occupation” was proper and was supported by a
reasonable explanation. Therefore, Sun Life’s decision was not arbitrary and
capricious and the trial court properly so determined.
In light of the foregoing, we hold that the trial court properly granted
partial summary judgment and that ERISA applied to the policy at issue in this
case. Further, the trial court properly determined that the appropriate standard of
review for Sun Life’s determination was the arbitrary and capricious standard.
Finally, Sun Life’s determination was supported by a reasonable explanation and
was not arbitrary and capricious, and Oliver is not entitled to benefits.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
M. Austin Mehr
Tinothy E. Geertz
Jeffrey C. Mando
Jennifer L. Langen