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Rustad-Link v. Providence Health and Services

United States District Court, D. Montana, Missoula Division

January 30, 2018


          OPINION & ORDER


         The question in this case boils down to a simple issue: Who is the beneficiary of a lawsuit stemming from an ERISA employee's misfortune? Is it the ERISA plan or is it the unfortunate employee? While the all or nothing propositions asserted by both parties here are not reasonable interpretations of the ERISA plan in question, the facts of this case favor the plaintiff. The defendant's shortcoming, among other mistakes, was to prioritize its plan interpretation to its financial interest.

         Unum Group Corporation ("Unum"), the defendant here, argues that it is entitled to offset its disability payments for lost income against every penny recovered because of the employee's misfortune. The unfortunate victim of medical malpractice in this case, the plaintiff Dawn Rustad-Link ("Rustad-Link"), argues there should be no offset because her below-the-knee amputation settlement was not for lost income, but encompassed a multiplicity of other damages that are not subject to the ERISA plan's offset provisions. Unum insists that it payed disability benefits regardless of the basis of the claim, whether in this case multiple sclerosis, below-the-knee amputation, or a variety of other medical problems that impact Rustad-Link's entitlement to disability benefits. This being the case, so goes the reasoning, it is entitled to an offset against the entirety of the proceeds of Rustad-Link's medical malpractice settlement.

         Rustad-Link's motion for summary judgment is granted as the reasoning supporting it is more persuasive. First, Washington law mandates a de novo standard of review. Second, Unum cannot assert the attorney-client privilege against Rustad-Link, its fiduciary, as to communications with counsel that occurred before the parties became adverse. Finally, Unum breached its fiduciary duty to Rustad-Link when it changed her disabling diagnosis following notice of her third-party settlement and deducted against her disability payments.


         Rustad-Link is a resident and citizen of Roseglen, Mclean County, North Dakota. (Doc. 11 at 2.) At all times relevant to this action, she was an employee, or disabled former employee, of Defendant Providence Health and Services at Providence Saint Joseph Medical Center in Poison, Montana ("Providence"). (Id.) Providence is the policyholder of a long term disability insurance plan, Policy Number 138177002 (the "Plan"). (Doc. 16-3 at 43; AR 000043.)[1] Unum is the disability insurance underwriter for the Plan, (Doc. 16-3 at 000003), and is the claims fiduciary for the Plan, (Doc. 16-3 at 56; AR 000056). As a private, employer-provided plan, the Plan is governed by the Employee Retirement and Income Security Act ("ERISA"). 29 U.S.C. §§ 1001 et seq.

         I. Coverage History

         Rustad-Link was diagnosed with multiple sclerosis ("MS") in 1996. (Doc. 16-8 at 98; AR 000714.) In 2010, she suffered a below-the-knee amputation resulting from negligent medical care. (Doc. 16-5 at 2-4; AR 000152-54.) The amputation occurred after an occlusion in her iliac artery blocked blood flow to her foot. She applied for disability benefits under the Plan, and Unum informed her on June 16, 2010, that her MS was a pre-existing condition that would not be covered for a period of 12 months.[2] (Doc. 26 at ¶ 3; AR 000156-57.)

         On June 21, 2010, Rustad-Link responded that the amputation, not the MS, had disabled her. (Doc. 16-5 at 8-9; AR 000158-59.) She stated in part that "multiple sclerosis is not the reason for filing this claim .... This amputation is the reason for the disability claim." (Id.)

         On June 11, 2010, Judith L. Gustafson, a certified nurse practitioner, identified MS as Rustad-Link's primary disability, her amputation as her secondary disability, and recorded her assessment in an Unum disability claim form. (Doc. 16-4 at 113-15; AR 000113-15.) She noted Rustad-Link had severe weakness and tremors, and that her disability was likely permanent. (Id.) On June 14, 2010, in a separate evaluation, Daniel Ramsch, M.D., identified the amputation as the primary disability, the MS as secondary, and also indicated Rustad-Link's disability was likely permanent. (Doc. 16-5 at 2-5; AR 00152-54.)

         On June 23, 2010, Unum granted Rustad-Link six month short-term disability under the Plan. (Doc. 16-4 at 146-47; AR 000146-47.) Unum did not communicate the specific condition or conditions that supported its disability determination to Rustad-Link. (Id.) Rustad-Link's attending physician, Mark Weber, informed Social Security Disability, noting that Rustad-Link's "[MS] ... along with her new amputation has resulted in profound impariment of her functional mobility." (Doc. 16-8 at 132; AR 000748.) On July 23, 2010, Rustad-Link submitted a disability report to Social Security Disability listing the following physical and mental conditions that limited her ability to work: "(1) multiple sclerosis; (2) right transtibial amputation; (3) right iliac artery occlusion; (4) chronic gastritis; (5) hypokalemia; (6) chronic pain; (7) phantom limb pain; (8) anemia." (Doc. 16-8 at 91; AR 000707.)

         On September 7, 2010, an Unum claim director, Tom Salce, held a round-table review of Rustad-Link's file to determine approval of her long-term disability. (Doc. 16-8 at 22; AR 000637.) The review confirmed disability due to the amputation, and indicated recovery "would be 4-6 months from present as [claimant] indicated she is still cleaning wound." (Id.) It also noted it was "[u]nclear what [Rustad-Link's] work capacity will be as she also has MS, " and that it was "[n]ot clear why [restrictions and limitations] for [Rustad-Link's] [right upper extremity]" existed. (Id.) Also on September 7, 2010, Unum granted Rustad-Link's request for Long Term Disability benefits. (Doc. 16-8 at 30; AR 000646.) The letter notifying Rustad-Link did not explain what condition or conditions supported its disability determination. (Id.)

         On February 28, 2011, Unum received an updated physician's statement from Rustad-Link's primary care provider, certified nurse practitioner Michelle Hellwig, which once again identified her amputation as the primary disability and MS as the secondary disability. (Doc. 16-12 at 134-36; AR 001350-52.) On March 3, 2011, Unum had another round-table review and noted that Rustad-Link's restrictions and limitations were medically supported but that "fine motor skills [were] not supported since [Rustad-Link] had mild tremors prior to [the amputation]." (Doc. 16-12 at 146; AR 001362.) Hellwig provided Unum another attending physician's statement on September 14, 2011, which also indicated the amputation was the primary cause of disability, with MS and chronic pain as secondary diagnoses. (Doc. 16-13 at 53-55; AR 001419-22.) The assessment noted "pain, limp, [and] tremors" as clinical findings supporting the diagnosis. (Id.) On November 18, 2011, Unum held another round-table review, concluding that Rustad-Link's "[injury causing disability] should be updated to reflect [below knee amputation] and MS as secondary." (Doc. 16-13 at 119; AR 001485.) Rustad-Link was not notified of the change. (Doc. 26 at ¶ 11.)

         Unum wrote Rustad-Link on November 21, 2011, to inform her that, beginning in August 2012, her coverage would be subject to a stricter definition of disability as she reached 24 months of payments. (Doc. 16-14 at 36-38; AR 001554-56.) Unum received an Attending Physician's Statement from neurologist Stephen Johnson[3] on August 21, 2012, which identified MS as the primary disability diagnosis, and did not identify any other causes of disability. (Doc. 16-14 at 147-49; AR 001665-67.) Unum prepared a summary of Rustad-Link's condition on September 14, 2012, noting she had been awarded Social Security disability for her amputation and her MS, and that a vocational rehabilitation consultant noted it might be possible to identify light or sedentary employment. (Doc. 16-15 at 37; AR 001705.) Unum determined Rustad-Link's "Injury Causing Disability" should be updated to MS. (Id.)

         On October 7, 2012, Helwig provided another attending physician's statement, which again stated Rustad-Link's primary disability diagnosis impacting functional capacity was her amputation, and that secondary diagnoses were MS and chronic pain. (Doc. 16-15 at 71-74; AR 001739-42.) Unum held another round-table review on October 22, 2012, in which Rustad-Link's medical history was reviewed, and concluding that Rustad-Link's restrictions and limitations regarding her upper extremities due to MS, the poor labor market in North Dakota (where she had moved), and the likelihood that her conditions would deteriorate qualified her for continued long-term disability. (Doc. 16-15 at 101-02; AR 001769-70.) The review also concluded Rustad-Link's injury causing disability should be updated to MS. (Id.) Unum informed Rustad-Link that continuation of her disability payments under the stricter definition of disability had been approved that same day. (Doc. 16-15 at 116-18; AR 001784-86.) Unum did not advise Rustad-Link that her injury causing disability had been updated to MS. (Id.)

         II. The Settlement Deduction

         On February 14, 2014, Rustad-Link's attorney informed Unum of a pending third-party settlement regarding her amputation. (Doc. 16-17 at 110-11; AR 000283-84.) Unum responded with a letter asserting a right to recover benefits as deductible sources of income under the Plan. (Doc. 16-17 at 137; AR 002118.) Unum then began the process of assessing whether Rustad-Link's settlement would qualify as a deductible source of income. (Doc. 16-17 at 135; AR 002116.) On August 19, 2014, Unum sent another letter, requesting information regarding Rustad-Link's settlement. (Doc. 16-17 at 141-42; AR 002122-23.)

         Rustad-Link's attorney wrote back on September 15, 2014. (Doc. 16-17 at 145-46: AR 0021 26-27 "l The letter informed T Tnnm that Rnstad-T ink's settlement was solely on the basis of her amputation, and did not involve any recovery for her MS. (Id.) Following receipt of that letter, Unum consulted in-house counsel and initially concluded that the settlement would not qualify for application of the third party settlement offset because it would represent attorney fees and past and future medical expenses. (Doc. 11 at ¶ 29; Doc. 3-28.)[4] Unum also concluded that a medical review was not necessary. (Doc. 3-29.) Despite these conclusions, Unum's Financial Recovery Unit then initiated an evaluation of Rustad-Link's injury causing disability to resolve whether Unum would "be supporting the claim for MS despite the amputation." (Doc. 16-18 at 12; AR 002146.)

         On November 5, 2014, Unum concluded that "[t]here is no indication at this time that [Rustad-Link's] MS [symptoms] have worsened to suggest that they rise to the level that would impact [her] functional capacity. Any support for decrease in function appears to be related to her [amputation]. It does not appear that [she] had an MS exacerbation sepsis and [amputation], and her [symptoms] increase was more likely to her noncompliance with medication. [Injury Causing Disability]: Need to switch [Injury Causing Disability]." (Doc. 16-18 at 27; AR 002167.) Unum subsequently informed Rustad-Link that "MS is not a basis for [Rustad- Link's] disability and that she is impaired only as a result of her below-the-knee amputation. This condition alone causes her current inability to work in any gainful occupation." (Doc. 16-18 at 30-31; AR 002171-72.) Unum informed Rustad-Link that as a result of her third-party settlement, Unum had overpaid benefits in the amount of $46, 856.28, and that it would begin reducing her payments by the monthly amount of $1, 924.60, resulting in a monthly payment of $115.71. (Doc. 16-18 at 35-36; AR 002176-77.)

         Rustad-Link's attorney responded December 2, 2014, noting that Unum's position "ignore[d] the unambiguous medical opinions of all providers that the MS and the amputation combine to render her disabled." (Doc. 16-18 at 43; AR 002184.) The letter also disputed the pro-ration of the lump sum settlement for life long losses, which it asserted should have been calculated over Rustad-Link's life expectancy instead of her work-life. (Id.) In a December 10, 2014 letter, Unum responded that it was "not required under the policy to apportion a deductible source of income with respect to the disabling diagnostic condition associated with that source of income, " and that "the third party settlement. .. [would] be considered a deductible source of income for the duration of [Rustad-Link's] claim." (Doc. 16-18 at 55; AR 002199.) On January 7, 2015, Unum sent a follow-up letter notifying counsel that it had begun to reimburse itself for the "overpayments" by deducting from Rustad-Links' monthly disability payments, and that Rustad-Link "w[ould] not receive a benefit payment until the overpayment [was] paid in full." (Doc. 16-18 at 70-72; AR 002215-17.) Rustad-Link timely appealed the decision with Unum on June 30, 2015. (Doc. 16-18 at 119; AR 002267.) Unum denied the appeal on July 14, 2015. (Doc. 16-18 at 1 BOSS; AR 002281-84.) Unum again asserted the Plan did not require it "to consider an apportionment of the settlement with respect to the disabling condition(s) associated with th[e] deductible source of income." (Doc. 16-18 at 131; AR 002282.)

         III. The Present Case

         Rustad-Link filed suit on October 20, 2016. (Doc. 1.) She claims Unum's assertion of the offset and repayment provisions constitute a breach of the terms of the Plan and a wrongful refusal to pay the benefits due, in violation of ERISA, 29 U.S.C. § 1132(a)(1)(B) and (a)(3). (Doc. 3 at 15.) She seeks an award of all disability benefits available under the Plan, including reimbursement for past benefits wrongly withheld, prejudgment interest, costs, and attorney's fees. (Doc. 3 at 16.) Both parties have moved for summary judgment, and agree that resolution of this matter is appropriate on the administrative record. (Docs. 17, 24).


         A party is entitled to summary judgment if it can demonstrate that "there is no genuine dispute as to any material fact and [it] is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment is warranted where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 411 U.S. 242, 251 (1986). Only disputes over facts that might affect the outcome of the lawsuit will preclude entry of summary judgement-factual disputes that are irrelevant or unnecessary to the outcome are not considered. Id. at 248. "[W]hen parties submit cross-motions for summary judgment, each motion must be considered on its own merits." Fair Hous. Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (internal quotation marks and alteration omitted).


         I. Standard of Review

         A threshold question here involves the standard of review regarding Unum's decision to offset against Rustad-Link's personal injury settlement. Rustad-Link insists de novo review should be applied, (Doc. 19 at 18), while Unum argues abuse of discretion is the appropriate standard of review, (Doc. 25 at 5). Rustad-Link has the better argument, although, as discussed below, the outcome is the same under either standard.

         The Supreme Court has held that "a denial of benefits challenged under § 1132(a)(1)(B) 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 the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). The Unum Plan contains a "discretionary clause, " which provides as follows:

The Plan, acting through the Plan Administrator, delegates to Unum and its affiliate Unum Group discretionary authority to make benefit determinations under the Plan. Unum and Unum Group may act directly or through their employees and agents or further delegate their authority through contracts, letters or other documentation or procedures to other affiliates, persons or entities. Benefit determinations include determining eligibility for benefits and the amount of any benefits, resolving factual disputes, and interpreting and enforcing the provisions of the Plan. All benefit determinations must be reasonable and based on the terms of the Plan and the facts and circumstances of each claim.

(Doc. 16-3 at 59; AR 000059.)

         The Ninth Circuit "read[s] Firestone to require abuse of discretion review whenever an ERISA plan grants discretion to the plan administrator, but a review informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record. This standard applies to the kind of inherent conflict that exists when a plan administrator both administers the plan and funds it, as well as to other forms of conflict." Abatie v. Alta Health & LifeIns. Co.,458 F.3d 955, 967 (9th Cir. 2006). In other words, "[a] district court, when faced with all the facts and circumstances, must decide in each case how much or how little to credit the plan ...

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