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PETERS v. LIFE INS. CO. OF NORTH AMERICA

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA


March 4, 1993

KEVIN S. PETERS, Plaintiff,
v.
LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendants.

LANGFORD

The opinion of the court was delivered by: F. STEELE LANGFORD

MEMORANDUM AND ORDER

On March 4, 1993, this Court considered memoranda submitted on the papers by the parties pursuant to Local Rule 220-1 to determine the standard of judicial review in this ERISA case. Attorney for plaintiff KEVIN S. PETERS is Thomas Edward Wall, Esq. Attorney for defendant LIFE INSURANCE COMPANY OF NORTH AMERICA is John Lockley, Esq.

 After considering the papers submitted and the record in the case, the Court rules that the standard of review in this case is a de novo trial in which new evidence may be admitted. The Court's ruling is based on the following:

 BACKGROUND

 Plaintiff was hired by Defendant San Francisco Federal Bank (SFFB) on October 3, 1988. Defendant's disability benefits program limits certain disability claims made during the first twelve months (the "limitation period") after the effective date of the program. The effective date for Plaintiff was February 1, 1989. The limitation is based on three questions:

 1. Did the claimed disability begin during the limitation period?

 2. Did the insured receive medical treatment, medication or advice during the ninety days prior to the beginning of the limitation period (in this case November 3, 1988 through January 31, 1989)?

 3. Were any of the conditions for which the insured received medical attention during the ninety day period a condition that caused or resulted in the claimed disability?

 If the answer to all three questions is "yes," the plan allows the insurer to deny the disability benefits claim.

 Plaintiff filed a claim for disability benefits due to Hodgkin's Disease on March 1, 1990. Plaintiff admits this disability began during the limitation period, so the answer to question one is "yes." The parties also agree that Plaintiff received medical attention during the ninety day period in question, so the answer to question two is "yes."

 However, the parties disagree on the answer to question three, specifically which conditions the Plaintiff was treated for during the ninety day period ending January 31, 1989 and whether those conditions caused or resulted in his Hodgkin's Disease. *fn1"

 Defendant denied Plaintiff's claim on September 7, 1990 and the appeal on January 28, 1991. The denials were based on the policy's pre-existing condition limitation, citing medical treatment Plaintiff received in the month of January, 1989.

 On April 4, 1991, Plaintiff filed this action seeking declaratory relief and allegedly unpaid and owing disability benefits, plus interest. This action is governed by The Employee Retirement Security Act of 1974 (ERISA), 29 U.S.C. sec. 1001 et seq.

 The record before the plan administrator at the time Plaintiff's claim was denied does not include any physician reports that directly address whether Plaintiff's medical conditions for which he received treatment during the crucial ninety day period are related to his Hodgkin's Disease. *fn2"

 ANALYSIS

 ABUSE OF DISCRETION STANDARD

 Defendant maintains that in ERISA cases the proper standard of review for this court is whether the plan administrator abused its discretion. Judge Weigel, in his order denying Defendant's motion for summary judgement, determined per the criteria set out in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989), that "this court must exercise de novo review of the plan administrator's denial of benefits." Peters v. Life Ins. Co. of North America, 93 Daily Journal D.A.R. 1702, 1703 (N.D.Cal 1992). *fn3" Thus, the law of the case in this matter makes it clear that only the scope of the de novo review is at issue.

 SCOPE OF DE NOVO REVIEW

 The Supreme Court in Bruch did not define what it meant by de novo review, leading to a three-way split among the circuits as to the scope of such review. The Ninth Circuit has not addressed this issue.

 Defendant argues that any de novo review of an ERISA case must be limited to a review of the record that was before the plan administrator, rather than a de novo hearing in which new evidence is admitted.

 In support of its position Defendant cites Perry v. Simplicity Engineering, 900 F.2d 963 (6th Cir. 1990). The Sixth Circuit limited de novo review to the record. Id. at 966. That court concluded that Congress did not intend federal district courts to "function as substitute plan administrators . . . . [contrary to] the goal of prompt resolution of claims by the fiduciary under the ERISA scheme." Id.

 However, Perry does not take into account the fact that this court is compelled to reach the substantive issue of whether plaintiff is entitled to benefits and to develop an adequate record before the court for making such a determination.

 The Eleventh Circuit has reached a different conclusion from the Sixth Circuit in Perry : namely that de novo review permits a court to consider evidence that was not before the plan administrator. Moon v. American Home Assur. Co., 888 F.2d 86 (11th Cir. 1989). The Eleventh Circuit held a review limited to the record "is contrary to the concept of a de novo review." Id. at 89.

 Defendant, as the Sixth Circuit did, cites to United States v Raddatz, 447 U.S. 667, 65 L. Ed. 2d 424, 100 S. Ct. 2406 (1980) for support. There the Supreme Court held de novo review by a district court of a magistrate's recommendation on motions to suppress in certain criminal cases is to be limited to a review of the evidentiary record before the magistrate.

 Defendant's citation of the deferential de novo review in Raddatz is not helpful. As one circuit noted, "plan administrators are not governmental agencies who are frequently granted deferential review because of their acknowledged expertise. Administrators may be lay persons appointed under the plan, sometimes without any legal, accounting or other training . . . ." Luby v. Teamsters Health, Welfare, and Pen. Tr. Funds, 944 F.2d 1176, 1183 (3rd Cir. 1991).

 The Third Circuit charted a middle approach in Luby. That court held a strict rule barring new evidence "makes little sense," but when the record is sufficiently developed ". . . the district court may, in its own discretion, merely conduct a de novo review of the record of the administrator's decision, making its own independent benefit determination." Id. at 1184-85. *fn4"

 Prior to Bruch, federal courts had adopted the arbitrary and capricious standard of review for ERISA cases. Bruch at 953. The rigid Perry view, limiting review to the record, makes sense under a standard where a decision based on an inadequate record could justify a finding that a plan administrator was arbitrary and capricious. However, the restrictive approach to de novo review adopted in seems contrary to the Supreme Court's warning in Bruch that " . . . the threat of increased litigation is not sufficient to outweigh the reasons for a de novo standard that we have already explained." Bruch at 956.

 Now that the Supreme Court has held that cases such as the one at issue must be judged de novo, the rigid rule favored in Perry does not make sense. In a case such as this one, where the record contains numerous and possibly conflicting medical terms and diagnoses, excluding new evidence would force this court to become its own medical expert.

 Neither is it helpful to apply an equally rigid rule allowing new evidence in all de novo reviews of ERISA cases, as per Moon. Nothing in Bruch requires a trial court to admit evidence if it is irrelevant, redundant or cumulative.

 In cases where the administrative record is sufficiently developed, limiting de novo review to the administrative record would further judicial economy, yet allow a trial court to comply with the requirements implicit in a de novo determination.

 This court adopts the Luby approach. Implicit in the Supreme Court's requirement of a de novo review is that a trial court must review an adequate record and then rule on the merits. Leaving the scope of de novo review up to the discretion of the trial court, based upon the sufficiency of the record, allows a court to admit new evidence when necessary, yet accommodates legitimate concerns for judicial economy

 SUFFICIENCY OF THE RECORD

 How should the court decide whether the record in this case is sufficient? In this district's only published case on this issue the court exercised its discretion to limit the scope of review to the record before the administrator. James v. Equicor, Inc., 791 F. Supp. 804, 808 (N.D.Cal. 1992). The question was whether the plaintiff was qualified for long term disability benefits. The record before the administrator contained reports from plaintiff's two treating physicians, a report by the plan's physician and from an outside consultant. Id. at 808. All reports concluded the plaintiff could work and the defendant was granted summary judgement. Id. at 809.

 Plaintiff's case is factually distinguishable from James. The record indicates that, unlike the plan administrator in James, Defendant acted without any medical reports directly addressing what Defendant itself identified as an important factual issue: whether Plaintiff's January, 1989 medical treatment was related to his Hodgkin's Disease. *fn5" Defendant's own doctor did not review the record prior to the denial of benefits.

 This court cannot make a determination based on the record alone. Without sufficient medical reports in the record, this court must exercise its discretion and allow further testimony to aid in its determination.

 CONCLUSION

 This court finds that, for the reasons stated above, the standard of review for this case is a de novo trial in which new evidence may be introduced by the parties and considered by the court.

 Dated: March 4, 1993

 F. STEELE LANGFORD

 Chief Magistrate Judge


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