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Lang v. LTD
UNITED STATES COURT OF APPEALS FOR THE
JUDITH LANG, aka Judith Clark-Lang, Plaintiff-Appellant,
LONG-TERM DISABILITY PLAN OF SPONSOR
APPLIED REMOTE TECHNOLOGY, INC.;
APPLIED REMOTE TECHNOLOGY, INC., a California Corporation
as Sponsor & Fiduciary of the Long-Term Disability Plan;
STANDARD INSURANCE COMPANY, A Mutual Life Insurance Company,
as Administator & Fiduciary of the Long-Term Disability Plan.
D.C. No. CV-95-00351-MLH
Appeal from the United States District
for the Southern District of California
Marilyn L. Huff, District Judge, Presiding
Argued and Submitted
March 4, 1997--Pasadena, California
Filed September 11, 1997
Before: Mary M. Schroeder, Warren J. Ferguson, and
Edward Leavy, Circuit Judges.
Opinion by Judge Schroeder
The summary, which does not constitute a
part of the opinion of the court, is copyrighted © 1994 by Barclays Law
Labor and Employment/ERISA
The court of appeals reversed a judgment of
the district court. The court held that a conflict of interest arising out
of the dual role as a benefit plan administrator and funding source
precludes deference to the plan's eligibility determination.
Appellant Judith Lang applied for long-term
disability benefits under her employee benefit plan. Appellee Standard
Insurance Company was the issuer and administrator of the plan. Lang
indicated an inability work based on job-related stress. Her symptoms
included crying, throwing up before work, inability to concentrate, and
insomnia. Standard applied the "mental disorder" two-year limitation to her
claim, applicable when a disability was "caused or contributed to" by a
mental disorder. "Mental disorder" was defined as a mental, emotional,
behavioral, or stress-related disorder. The plan was silent as whether the
administrator should look to causes or symptoms when determining whether the
claimant had a mental disorder.
While receiving benefits, Lang was
diagnosed with fibromyalgia, a type of rheumatism which is commonly
accompanied by fatigue, sleep disturbances, lack of concentration, changes
in mood, anxiety, and depression. The anxiety and depression are considered
to be symptoms of the muscular disease, rather than causes of it.
Lang requested a reassessment. Standard
refused to remove the mental disorder limitation, explaining that it had
found no objective medical evidence to support her claim that she had
fibromyalgia, and that it still believed that her disability was caused or
contributed to by depression. Standard's quality assurance unit affirmed on
different grounds, stating that  Lang had failed to establish that
her fibromyalgia, separate from psychological factors, was disabling in and
of itself and that it considered symptoms, not cause, when deciding whether
to apply the mental disorder limitation.
Lang sued Standard under the Employee
Retirement Income Security Act (ERISA) for terminating her benefits. The
district court granted summary judgment against Lang. Lang appealed.
When an ERISA plan vests its administrator with discretion to determine
eligibility for benefits and to construe the terms of the plan, as this plan
did, the district court ordinarily reviews the administrator's determination
for abuse of discretion.
However, given Standard's dual role as both the funding source and the
administrator of the plan, there was an inherent conflict of interest.
Decisions of an apparently conflicted employer- or insurer-fiduciary are
reviewed under the traditional abuse of discretion standard unless it
appears that the conflict may have influenced the decision. The affected
beneficiary must come forward with material evidence that the fiduciary's
self interest caused a breach of the administrator's fiduciary obligations
to the beneficiary.
Once a beneficiary comes forward with such evidence, principles of trust law
require careful review of an administrator who appears to have committed a
breach of fiduciary duty.
The plan then bears the burden of showing that the conflict of interest did
not affect its decision to deny or terminate benefits. If the plan fails to
carry its burden, review is without deference to the administrator's tainted
exercise of discretion.
The inconsistencies in the reasons Standard gave for its refusals to lift
the mental disorder limitation constituted mate- rial, probative evidence
that its decision was affected by self- interest.
Standard offered no explanation that its decision was made for the benefit
of other plan participants and benefi- ciaries. Its decision to limit
benefits was not entitled to deference.
The plan language was ambiguous.
Ambiguities in ordinary insurance contracts are construed against the
insurance company. This rule required adoption of the reasonable
interpretation advanced by Lang, i.e., that the phrase "mental disorder" did
not include "mental" conditions resulting from "physical" disorders.
The district court did not conduct the appropriate con- flict of interest
analysis and accorded Standard a deference to which it was not entitled.
Lang was entitled to reinstatement of her long-term disability benefits.
Jeffrey I. Ehrlich, Washington, DC, for the plaintiff-appellant. Howard
Bennett Hellen, San Diego, California, for the plaintiff-appellant. Michael
A. Conley, Pillsbury Madison & Sutro, LLP, San Francisco, California, for
SCHROEDER, Circuit Judge:
Judith Lang, a former contracts manager for
Applied Remote Technology, Inc., appeals the district court's grant of
summary judgment in favor of defendants-appellees on her claim for long-term
disability benefits. The appellees are Applied Remote Technology, the
sponsor of the welfare benefit plan (the "Plan") under which Lang claimed
the benefits,  and Standard Insurance Company, the issuer and
administrator of the Plan. In her suit, under Section 502(a)(1)(B) of the
Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. S 1132
(a)(1)(B), Lang claims that Standard wrongfully terminated her benefits.
Standard contends that its decision to limit Lang's benefits to two years
was proper because her disability was "caused or contributed to" by a
"mental disorder," for which the Plan provided a two-year limit. Lang
disagrees that her disability was due to a "mental disorder." She argues
that the Plan is ambiguous as to what constitutes a "mental disorder" and
that Standard's determination was tainted by self-interest. We conclude that
Standard's conflict of interest, arising out of its dual role as the
administrator and funding source for the Plan, affected its decision in
Lang's case. For that reason, Standard's interpretation of the Plan and its
ultimate determination must be reviewed without deference. We hold the
benefits were improperly terminated.
Lang first applied for benefits in December
of 1992. She indicated that her inability to work was triggered by stress
arising from her job. The symptoms she described were "uncontrollable
crying," "throwing up before work," and "inability to concentrate." Lang
listed a psychiatrist, Dr. Venn-Watson, as her treating physician. Dr.
Venn-Watson had diagnosed Lang as having depressive neurosis and was
treating Lang for "insomnia" and "frequent crying spells." Upon receipt of
Lang's application for benefits, Standard informed Lang that it intended to
apply the "mental disorder" limitation to her claim. Under the Plan,
Standard was authorized to terminate the payment of long-term disability
benefits after two years if the beneficiary's disability was "caused or
contributed to" by a "mental disorder.""Mental disorder" was defined in the
Plan as a "mental, emotional, behavioral, or stress-related disorder." The
Plan, however, was silent as to whether the administrator should look to
causes or symptoms when determining whether the claimant had a "mental
 disorder" for purposes of applying the limitation. The Plan granted
discretion to Standard to construe the terms of the Plan.
While Lang was receiving benefits during
the two-year period, her family care physician, Dr. Wasserman, diagnosed her
with fibromyalgia. Fibromyalgia is a type of muscular or soft-tissue
rheumatism that affects principally muscles and their attachment to bones,
but which is also commonly accompanied by fatigue, sleep disturbances, lack
of concentration, changes in mood or thinking, anxiety and depression. See
Fibromyalgia, Arthritis Foundation Pamphlet at 1, 5 (1992). The depression
and anxiety associated with fibromyalgia are believed to be symptoms of this
muscular disease, rather than causes of it. Researchers suggest that there
is a possible "biologic link" between fibromyalgia and some forms of
depression and chronic anxiety. Id. at 5. In addition, the Pamphlet reports
that while "[t]he single exact cause of fibromyalgia is unknown[,] . . . a
number of stresses . . . may precipitate the generalized pain, fatigue,
sleep, and mood problems that characterize fibromyalgia." Id. at 7. It is
often difficult to diagnose fibromyalgia, and "[o]ften people with
fibromyalgia have undergone many tests and have seen many different
specialists while in search of an answer. " Id. at 10. Lang was experiencing
all of the symptoms associated with fibromyalgia at all relevant times.
Armed with her new fibromyalgia diagnosis,
Lang requested that Standard reassess its initial determination to apply the
mental disorder limitation to her claim. In response, Standard sent Lang's
medical records to Dr. Fraback, a rheumatologist often used by Standard to
evaluate long-term disability claims. He did not examine Lang, but opined,
in a short memorandum, that Lang's disability was primarily due to her
depression, and that Lang's fibromyalgia diagnosis was not clear because
Lang's doctor had failed to identify the requisite number of trigger points.
On the basis of that report, Standard refused to remove the mental disorder
limitation.  Standard explained to Lang in a letter dated January 9,
1995, that its decision was based on the fact that it had found no objective
medical evidence to support Lang's claim that she had fibromyalgia, and that
it still believed that Lang's disability was "caused or contributed to" by
Standard's Quality Assurance Unit reviewed
this initial denial, and affirmed it in a letter dated February 24, 1995,
although on different grounds. This time, Standard stated that it was no
longer disputing that Lang had fibromyalgia, and wrote that it was aware of
the various symptoms and "diagnostic criteria established for this condition
as set forth by the American College of Rheumatology." However, the Quality
Assurance Unit still denied Lang's claim, but on the ground that Lang had
failed to establish that her fibromyalgia, "separate from psychological
factors, [was ] disabling in and of itself." Standard also stated, for the
first time, that it "consider[ed] symptoms, not cause" when deciding whether
to apply the "mental disorder" limitation. Standard, in effect, took the
position that even if Lang's depression was a symptom of her physical
disorder, fibromyalgia, the limitation would still apply.
1. Standards of Review
We review the district court's grant of summary judgment de novo. Mongeluzo
v. Baxter Travenol Disability Ben. Plan, 46 F.3d 938 (9th Cir. 1995). We
also review de novo the district court's choice and application of the
standard of review applicable to decisions by fiduciaries in the ERISA
context. Taft v. Equitable Life Assurance Soc'y, 9 F.3d 1469, 1471 (9th Cir.
When an ERISA plan vests its administrator with discretion to determine
eligibility for benefits and to construe the terms of the plan, as the Plan
does in this case, the district  court ordinarily reviews the
administrator's determination for abuse of discretion. Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Taft, 9 F.3d at 1471.
The degree of judicial deference associated
with this standard of review may, however, be affected by factors such as
conflict of interest. See Firestone, 489 U.S. at 115 (courts must weigh
conflict as a "factor" in determining whether abuse of discretion has
occurred); Brown v. Blue Cross & Blue Shield of Alabama, Inc., 898 F.2d
1556, 1564 (11th Cir. 1990) (the abuse of discretion standard "must be
contextually tailored[,]" so that the degree of deference accorded to the
plan fiduciary depends "upon the dynamics of the decision-making process[
]") (quotations omitted).
The Plan in this case is actually an insurance policy issued and
administered by Standard. Given Standard's dual role as both the funding
source and the administrator of the Plan, we are faced with an inherent
conflict of interest situation, and must take this factor into account.
Brown, 898 F.2d at 1561 ("Because an insurance company pays out to
beneficiaries from its own assets rather than the assets of a trust, its
fiduciary role lies in perpetual conflict with its profit-making role as a
Nevertheless, the presence of conflict does
not automatically remove the deference we ordinarily accord to ERISA
administrators who are authorized by the plan to interpret a plan's
provisions. We considered this issue in Atwood v. Newmont Gold Co., Inc., 45
F.3d 1317, 1322 (9th Cir. 1995). We there observed that our circuit's
approach is similar to the Eleventh Circuit's, where the leading decision is
Brown, supra. Judge Johnson's opinion for the Eleventh Circuit in Brown
contains an extensive and sensitive discussion of the reasons for replacing
traditional deference with a different analysis when dealing with ERISA
plans where there exists an inherent conflict of interest. Brown explained
that plans such as this one, funded by insurers and also administered by
 them, are not true trusts. The administrator's decisions in these
cases are hence not as easily justified as the decisions of a fiduciary in
the case of a true trust. See Brown, 898 F.2d at 1567.
Looking to Brown for guidance, we held in Atwood that "our traditional abuse
of discretion review [is not altered] in the absence of facts indicating
that [the] conflicting interest caused a serious breach of the plan
administrator's fiduciary duty to . . . the plan beneficiary". Atwood, 45
F.3d at 1322. Instead, we held that we must review the decisions of an
apparently conflicted employer- or insurer-fiduciary under the traditional
abuse of discretion standard unless it appears that the conflict may have
influenced the decision. To make such a showing, the affected beneficiary
must come forward with "material, probative evidence, beyond the mere fact
of the apparent conflict, tending to show that the fiduciary's self interest
caused a breach of the administrator's fiduciary obligations to the
beneficiary." Id. If the beneficiary satisfies that burden, our review
remains for abuse of discretion, but it becomes "less deferential." See Snow
v. Standard Ins. Co., 87 F.3d 327, 331 (9th Cir. 1996) (citing Atwood, 45
F.3d at 1322).
In Atwood we reviewed the approaches of various circuits to the problem of
reconciling the discretion vested in the administrator, with the requirement
inherent in trust law, that a fiduciary act without self-interest. We
concluded that once the beneficiary comes forward with evidence that the
fiduciary may have acted in its own self-interest, a more careful review
must be undertaken. We explained that:
principles of trust law require us to act
very skeptically in deferring to the discretion of an administrator who
appears to have committed a breach of fiduciary duty. . . .
Under the common law of trusts, any action taken by a trustee in violation
of a fiduciary obligation is  presumptively void. . . . Where the
affected beneficiary has come forward with material evidence of a violation
of the administrator's fiduciary obligation, we should not defer to the
administrator's presumptively void decision.
Atwood, 45 F.3d at 1323 (internal citations omitted).
In that circumstance, the plan bears the burden of rebutting the presumption
by producing evidence to show that the conflict of interest did not affect
its decision to deny or terminate benefits. Id. The plan might be able to
meet this burden, for example, by showing how its decision in fact
benefitted the plan as a whole and therefore the rest of the beneficiaries
under the plan. See Brown, 898 F.2d at 1566-67. For example, the
administrator might be able to show that its decision was intended to
prevent an unanticipated expenditure that would have depleted the resources
available to other beneficiaries of the plan. Id. at 1568. Such a showing
would be sufficient because the fiduciaries' main ERISA duty is "to act
solely in the interest of plan participants and beneficiaries. " Fine v.
Semet, 699 F.2d 1091, 1095 (11th Cir. 1983). If the plan fails to carry its
burden, however, our review becomes de novo, "without deference to the
administrator's tainted exercise of discretion." Atwood, 45 F.3d at 1323.
2. Application of the Atwood test to Lang's
To trigger de novo review of Standard's decision, Lang had the initial
burden to provide sufficient probative, material evidence that Standard may
have acted in its own self-interest. This court has never had occasion to
decide what kind of showing is sufficient to satisfy this threshold
requirement and shift the burden to the administrator.
Sound specific guidance is provided in
Brown. There, the administrator had originally denied payments for two
periods of hospitalization, and then changed its position for one of 
those periods, on the basis of no new evidence. The court deemed this
inconsistency an indication that the insurer's decision may have been
tainted by self-interest. Brown, 898 F.2d at 1569.
In this case, the inconsistencies in Standard's position are even sharper.
The reason given for the termination of benefits in the January 9, 1995
letter was that Lang did not have fibromyalgia. Standard's view at that time
was therefore that Lang had not shown that her disability was "caused or
contributed to" by a physical ailment. On review, when confronted with clear
evidence from her treating physician that she did suffer from a physical
ailment -- fibromyalgia -- Standard took the position that Lang would have
to make a further showing that the fibromyalgia "in and of itself" was
disabling. Standard further justified its denial on the theory that,
regardless of the cause of the disability, the critical determinants of
whether a person was afflicted with a "mental disorder" were symptoms and
not causes. We conclude that the inconsistencies in the reasons Standard
gave for its refusals to lift the "mental disorder" limitation constitute
material, probative evidence that its decision was affected by
That does not end our inquiry, however, because once the claimant has met
her initial burden of producing evidence from which it could be inferred
that the plan's decision was tainted, the burden shifts to the plan
administrator to show that its decision was in fact in furtherance of its
fiduciary responsibilities. Atwood, 45 F.3d at 1323. Standard offers no
explanation that its decision was made for the benefit of other plan
participants and beneficiaries. Nor do we perceive any indication in the
record of such a motivation. We therefore conclude that Standard's decision
to limit benefits on the basis of a determination that Lang's disability was
due to a "mental disorder" is not entitled to deference and is subject to de
 The two-year limitation in the Plan relates to disabilities
"caused or contributed to" by a "mental disorder." Lang contends that
because the record reflects that her disability was caused by a physical
illness, fibromyalgia, the limitation does not apply. In its February 24
letter, however, Standard interpreted the term as referring to symptoms, and
not to causes. The Plan language presents an almost classic ambiguity. See
Kunin v, Benefit Trust Life Ins. Co., 910 F.2d 534 (9th Cir. 1990); Phillips
v. Lincoln Nat. Life Ins. Co., 978 F.2d 302 (7th Cir. 1992). Both Kunin and
Phillips considered a similar phrase, "mental illness," and held that it was
ambiguous in that it could reasonably refer either to illnesses with
non-physical causes, or to illnesses with physical causes, but exhibiting
both physical and non-physical symptoms.
If we were according Standard's
interpretation the deference ordinarily due an administrator vested with
discretion to interpret the plan, we would have to uphold Standard's
interpretation as reasonable. In this case, however, Standard is no longer
entitled to such deference, because Lang has satisfied her burden of showing
the presence of a taint, and Standard has not rebutted it.
Accordingly, we may construe the Plan in accordance with the rules normally
applied to insurance policies. Ambiguities in ordinary insurance contracts
are construed against the insurance company. We noted in Kunin, supra, in
the case of an insured plan that did not grant the administrator discretion
to construe its terms, that this is the law of California and virtually
every other jurisdiction in the country. Kunin, 910 F.2d at 539. See
generally, 2 G. Couch, R. Anderson and M. Rhoades, Couch on Insurance 2nd S
15:83, at 399 n.4 (rev. ed. 1984). The rule, known as the doctrine of contra
proferentem, requires us to adopt the reasonable interpretation advanced by
Lang, i.e., that the phrase "mental disorder" does not include "mental"
conditions resulting from "physical" disorders.
 In this case there is no question
that Lang was under a disability from the time that she originally applied
for benefits in 1992. Moreover, there is nothing in the record to indicate
that the nature of her physical or mental condition materially changed. The
only change is the diagnosis of the cause of her disability from depression
unrelated to any physical disease, to fibromyalgia, an affliction with a
physical source, but which is often accompanied by depression.
The district court did not conduct the appropriate conflict of interest
analysis and hence accorded Standard a deference to which it was not
entitled. Lang is entitled to reinstatement of her long-term disability
The judgment of the district court is
REVERSED and the case REMANDED with instructions to enter judgment in favor