E-Alert Case Updates
Plan Administrator’s Policy Interpretation Upheld Despite ERISA Challenge
Fortier v. Principal Life Insurance Company
In this recently issued opinion from the U.S. Court of Appeals for the Fourth Circuit, the Court affirmed the U.S. District Court for the Eastern District of North Carolina’s decision granting Defendant Principal Life’s Motion for Summary Judgment. The Court held that Principal Life’s policy administrator made a reasonable interpretation of the policy language with regard to Mr. Fortier’s disability benefits; and therefore, no ERISA violation occurred. (ERISA is the Employee Retirement Income Security Act of 1974, codified at 29 U.S.C. § 1132).
Dr. Fortier, an OB/GYN, began his own medical practice in October 2002 when he broke away from partners in a former practice where he had been since 1994. The practice had a group policy for both short and long term disability benefits with Principal Life.
In early 2005, Fortier became disabled and was forced to close his practice. He applied for both the short and long term disability benefits. However, Fortier also began receiving benefits in the amount of $15,470.00 per month from Unum under separate coverage. (The UNUM benefits were not at issue in this action). In light of the UNUM benefits being paid, Principal Life ceased payments on the basis that his pre-disability income was not sufficiently large to entitle him to coverage above that which UNUM was providing. Dr. Fortier claimed that his pre-disability income was $48,913.00 per month, as opposed to the $9,916.00 per month calculated by Principal Life’s administrator.
The crux of this significant discrepancy was whether Dr. Fortier’s expenses in 2003 and 2004, associated with starting up his new medical practice (that he deducted as business expenses in his federal tax returns) should be taken into account when determining his pre-disability income. Fortier argued that they should not be considered pursuant to the policy language because they were not “usual and customary” business expenses, incurred on a regular basis. But rather, that they were unique “one-time” expenses associated with opening a new practice.
The parties agreed that the administrator of the disability policy has discretion to construe the policy and determine benefit eligibility. A court reviewing the administrator decisions must review only for abuse of discretion, and not disturb a reasonable decision, even if the Court itself would have reached a different conclusion. Fortier at *7 (citing Haley v. Paul Revere Life Insurance Co, 77 F.3d 84, 89 (4th Cir. 1996)).
In making the determination of whether a plan administrator has abused its discretion, the Fourth Circuit applies an eight (8) factor test set out in Booth v. Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan, 201 F.3d 335 (4th Cir. 2000). The factors for consideration being:
Booth, 201 F.3d at 342–43.
Thereafter, the Court applied the test and determined that Principal Life’s denial of Dr. Fortier’s claims for benefits was based on a reasonable reading of Principal Life’s disability policies. The Court found specifically that the use of the term “regular” could reasonably be interpreted to mean “ordinary” as opposed to “frequent” or “repeatedly” and as such, the one-time expenditures associated with opening a new practice could be deemed a regular business expense, and considered in determining pre-disability income.
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