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Hagan v. Northwestern Mutual Life Insurance Co.

United States District Court, W.D. Kentucky, Louisville

October 11, 2017




         This matter is before the court on motion of Defendant Northwestern Mutual Life Insurance Company for Judgment on the Administrative Record. For the following reasons, Defendant's motion for a Judgment on the Administrative Record will be GRANTED. Accordingly, Plaintiff William L. Hagan, M.D.'s Amended Complaint will be DISMISSED WITH PREJUDICE.

         I. BACKGROUND

         This action was brought by William L. Hagan, M.D. (“Dr. Hagan”) against Northwestern Mutual Life Insurance Company (“Northwestern”) alleging an unlawful denial of long-term disability benefits under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”). Bardstown Primary Care, PLLC (“Bardstown Primary Care”) is the policy owner of a Group Long Term Disability (“LTD”) Policy (“Policy”) with Northwestern. (Admin. R. at ¶ 15-02722-000005.) Dr. Hagan is a family physician at Bardstown Primary Care in Bardstown, Kentucky and a member of the LTD Policy. (Id. at ¶ 15-02722-000170.)

         Under the Policy, a member can meet the Definition of Disability if he satisfies either the Own Occupation Definition of Disability or the Partial Disability Definition.[1] (Id. at ¶ 15-02722-0000021.) The Own Occupation definition of Disability states, in relevant part, “You are Disabled from your Own Occupation if, as a result of Sickness, Injury, or Pregnancy, you are unable to perform with reasonable continuity the Material Duties of your Own Occupation.” (Id. at ¶ 15-02722-0000022.) Next, the Partial Disability Definition states, in relevant part, “you are Partially Disabled if you are working in your Own Occupation but, as a result of Sickness, Injury, or Pregnancy, you are unable to earn more than the Own Occupation Income Level.” (Id.) A policy member is considered to be working in his Own Occupation when he is working in “any employment, business, trade, profession, calling, or vocation that involves Material Duties of the same general character as [his] regular and ordinary employment with [his] Employer.” (Id.) The Own Occupation Income Level is 80% of the member's Indexed Predisability Earnings. (Id. at NM 15-02722-0000015.)

         In January of 2012, Dr. Hagan suffered a retinal hemorrhage in his right eye, resulting in a loss of “all vision in the right eye… with no hope of recovery.” (Id. at ¶ 15-02722-000068.) Medical records also indicate that, prior to the retinal hemorrhage, Dr. Hagan had “poor vision of longstanding in both eyes.” (Id. at ¶ 15-02722-000070.) Dr. Hagan received short-term disability payments from Northwestern beginning February 13, 2012. He also submitted a claim for LTD under the Policy. (Id. at ¶ 15-02722-0000283.) Dr. Hagan was authorized by his treating ophthalmologist to return to work part-time beginning March 5, 2012. (Id. at ¶ 15-02722-0000141.) On April 9, 2012, Bardstown Primary Care notified Northwestern that Dr. Hagan's salary would be reduced by 25% to reflect his part-time return to work. (Id. at ¶ 15-02722-0000301.)

         Northwestern began its review of Dr. Hagan's LTD claim in February of 2012. The review included an investigation into Dr. Hagan's medical, vocational, and financial information. (Id. at ¶ 15-02722-0000155; NM 15-02722-0000158.) Northwestern requested medical records from Dr. Susan Berberich and Dr. Charles Barr, two of Dr. Hagan's treating physicians. (Id. at ¶ 15-02722-0000094; NM 15-02722-0000106.) On May 15, 2012, Northwestern also advised Dr. Hagan that it had contacted Dr. Charles Barr directly concerning his specific limitations and restrictions. (Id. at ¶ 15-02722-0000256.) Dr. Gilbert Child, a physician and independent contractor hired by Northwestern, provided an independent review of the medical records obtained by Northwestern. (Id. at ¶ 15-02722-0000069.)

         Pursuant to the above information and review, Northwestern sent Dr. Hagan a letter on July 16, 2012 advising him that he was approved for LTD benefits. (Id. at ¶ 15-02722-0000239-42.) The letter explained that his claim was approved because of his “inability to perform [his] own occupation due to the limitations and restrictions imposed by [his] medical condition.” (Id.) Northwestern also informed him that his total monthly LTD benefits would be reduced by his Work Earnings[2] since he was working as a physician part-time. (Id.) Specifically, Northwestern calculated his monthly pre-disability income at $13, 730.30 and his current monthly Work Earnings at $7, 499.43. (Id.) Payment of benefits would apply retroactively to April 29, 2012, the date when his short-term disability payments ended. (Id.) Northwestern further advised that quarterly documentation of Work Earnings must be submitted to prevent an overpayment of benefits. (Id.)

         On October 25, 2012, Northwestern requested Dr. Hagan's updated financial information as part of its periodic review of Dr. Hagan's LTD claim. (Id. at ¶ 15-02722-0000358.) In a letter to Northwestern dated November 9, 2012, Dr. Hagan admitted he was currently working full-time hours, but worked at a “much slower pace.” (Id. at ¶ 15-02722-0000223.) He explained that he could no longer perform certain procedures requiring accurate vision, such as suturing and biopsies, and that he was seeing only half of the number of patients he was seeing before his disability. (Id.) With this letter, Dr. Hagan also submitted his payroll information and his current procedural terminology (“CPT”) codes, which identified his medical procedures and billing charges through a national coding system. (Id.)

         In a November 14, 2012 letter, Northwestern informed Dr. Hagan that, after reviewing his November 9 letter and the supporting financial information, he no longer met the Definition of Disability. (Id. at ¶ 15-02722-0000170.) Specifically, Northwestern found that he did not meet the Own Occupation Definition of Disability because he had returned to work full-time as a physician and was performing Material Duties of a physician. (Id.) Northwestern acknowledged that Dr. Hagan's injury caused him to work at a slower pace, and likewise acknowledged that he could no longer perform some specific procedures, but concluded that the duties he was performing on a full-time basis were still Material Duties of a physician such that he did not meet the Own Occupation Definition of Disability. (Id.)

         Northwestern also explained that Dr. Hagan did not qualify for benefits under their Partial Disability Definition. (Id. at ¶ 15-02722-0000171.) The Partial Disability Definition requires a policy member to earn less than his Own Occupation Income Level; accordingly, in order to meet this definition, Dr. Hagan would have to be earning less than $10, 984.24 per month.[3] (Id.) Yet, Dr. Hagan's updated financial information showed he earned an average of $11, 835.17 per month between April 1, 2012 and October 31, 2012. (Id.) Additionally, a review of his CPT charges showed that he was collecting 80.82% of his 2011 billing charges despite the fact that his ability to generate billable units had dropped by about 25%. (Id.) In reference to the 25% decrease in billable units, Northwestern stated that “it appears you have accommodated for that by billing other types of procedures and procedures that may provide somewhat higher charges.” (Id.) Lastly, Northwestern's letter informed Dr. Hagan that he had been overpaid on his claim by $24, 800.08 in light of the updated financial documents. (Id.) Northwestern requested a check reflecting this amount pursuant to the Policy and the reimbursement agreement that Dr. Hagan had previously signed. (Id.)

         Ultimately, Northwestern stated that, “we acknowledge and understand that you are working with a medical condition that has reduced your functional work capacity. However, your continued ability to earn above the allowable levels has disqualified you from receiving additional benefits from this policy at this time.” (Id. at ¶ 15-02722-0000172.) The November, 14 letter further informed Dr. Hagan that he had a right to request a review of the decision within 180 days and that he had the right to submit additional information in connection with the claim to be considered on review. (Id.)

         Upon Dr. Hagan's request, Northwestern's Administrative Review Unit (“ARU”) began reviewing Dr. Hagan's LTD claim in August of 2014.[4] (Id. at ¶ 15-02722-0000200.) In his request for review, Dr. Hagan neither submitted additional evidence to be considered nor provided a rationale for his disagreement with Northwestern's closure of his LTD claim. (Id. at ¶ 15-02722-0000209.) The ARU completed its review and mailed its findings in a letter to Dr. Hagan on August 15, 2014. (Id. at ¶ 15-02722-0000162-4.) The ARU concluded that the decision to close Dr. Hagan's claim, based upon the information in his file, was correct and must be upheld. (Id.) This letter contained a breakdown of Dr. Hagan's earnings, including his salary from January 7, 2012 to October 27, 2012 and additional income amounts, [5] as well as an explanation of the calculations used to determine that Dr. Hagan was earning more than 80% of his Predisability Earnings. (Id.) Dr. Hagan filed his Amended Complaint on March 4, 2016. (Am. Compl., DN 19.) Northwestern's Counterclaim for the recovery of overpaid benefits and Motion for Judgment on the Administrative Record followed. (Countercl., DN 22; Def.'s Motion, DN 31.)


         A civil action for the denial of long-term disabilities under a group insurance plan may be brought in this court pursuant to 29 U.S.C. § 1132(a)(1)(B). On a motion for judgment on the administrative record, the denial of benefits “is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of plan.” Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). When the administrator or fiduciary has discretionary power under the plan, it is well-settled that the arbitrary and capricious standard of review applies. Davis v. Kentucky Finance Cos. Retirement Plan, 887 F.2d 689, 693 (6th Cir. 1989); Killian v. Healthsource Provident Adm'rs, Inc., 152 F.3d 514, 520 (6th Cir. 1998); Evans v. UnumProvident Corp., 434 F.3d 866, 875 (6th Cir. 2006).

         The arbitrary and capricious standard is highly deferential; it is the “least demanding form of judicial review of administrative action.” Davis, 887 F.2d at 693 (citing Pokratz v. Jones Dairy Farm, 771 F.2d 206, 209 (7th Cir. 1985)). A decision is not arbitrary and capricious when “it is possible to offer a reasoned explanation, based on the evidence, for a particular outcome.” Evans, 434 F.3d at 476 (citing Killian, 152 F.3d at 520). Therefore, an administrator's decision will be upheld “if it is the result of a deliberate principled reasoning process” supported by evidence. Id. Lastly, the court's review under this standard is limited to the evidence contained in the administrative record. Kalish v. Liberty Mut./Liberty Life Assurance Co. of Boston, 419 F.3d 501, 511 (6th Cir. 2005).

         On Northwestern's motion, the court will review the administrative record under the arbitrary and capricious standard. The language of the Policy is clear, and neither party disputes, that Northwestern has discretionary powers of decision-making. The Policy states in a section entitled “Allocation of Authority, ” that “the Company has full and exclusive authority to control and manage the Policy, to administer claims, and to interpret the Policy and resolve all questions arising in the administration, interpretation, and application of the Policy.” (Id. at ΒΆ ...

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