In the
United States Court of Appeals
For the Seventh Circuit

No. 00-3760

PATRICK J. O’REILLY,

Plaintiff-Appellant,

v.

HARTFORD LIFE & ACCIDENT
INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 7958--David H. Coar, Judge.

ARGUED SEPTEMBER 24, 2001--DECIDED November 30, 2001



  Before POSNER, RIPPLE and KANNE, Circuit
Judges.

  RIPPLE, Circuit Judge. Patrick J.
O’Reilly is a beneficiary of a Long-Term
Disability Plan ("the Plan") administered
by Hartford Life & Accident Company.
After Hartford denied his claim for
benefits, O’Reilly filed suit under
ERISA, claiming that the denial violated
the terms of the Plan. The district court
granted summary judgment for Hartford.
Mr. O’Reilly appeals. For the reasons set
forth in this opinion, we affirm the
judgment of the district court.

I

BACKGROUND

A.

  Patrick O’Reilly was Senior Vice-
President and Chief Actuary of Montgomery
Ward & Company, Inc. ("Ward"). As a
result of a 1978 scuba diving accident,
O’Reilly is hearing impaired. In 1990, he
enrolled in the Ward Long-Term Disability
Plan. By then, he was required to use
hearing aids in both ears. The Plan
provided coverage for this pre-existing
condition. Mr. O’Reilly’s hearing
progressively worsened and, in 1995, he
filed for short-term disability benefits
under the Plan. The physician’s statement
accompanying Mr. O’Reilly’s claim for
short-term disability diagnosed him with
"bilateral sensorineural hearing loss"
and reported that Mr. O’Reilly had
"[d]ifficulty hearing, understanding,
particularly in noise, in group
situations and large listening areas."
R.2, Ex.1(A). Mr. O’Reilly’s position
required him to attend group meetings, a
function his condition made impossible.

  Hartford Life & Accident Company
("Hartford"), the Plan’s underwriter,
approved his claim for short-term
benefits. Mary Fisher of Hartford’s Group
Disability Department spoke with Mr.
O’Reilly in January 1996 and suggested
that he meet with Jim Radke, a
vocational/rehabilitation specialist, to
discuss modifications which could help
Mr. O’Reilly perform his work. Hartford
received several reports from Radke
describing Mr. O’Reilly’s limitations.
According to Radke, "Mr. O’Reilly
indicates that he has really no
difficulty with the one-on-one communica
tion, especially in an office setting. It
is in loud or distracting environments
that he experiences this problem." R.2,
Ex.16. Radke also took note of Mr.
O’Reilly’s demeanor and outlook at their
meetings, because Mr. O’Reilly also was
suffering from depression, brought on by
his hearing loss and inability to work.

  In March 1996, Mr. O’Reilly filed a
claim for long-term disability benefits.
On May 20, 1996, Hartford sent a letter
to Mr. O’Reilly informing him that his
benefits were approved, retroactive to
February 14, 1996. Mr. O’Reilly’s pre-
disability monthly pay was $13,452. His
monthly benefits under the Plan would be
60% of that, less 50% of any salary
earned. Mr. O’Reilly informed Hartford
that he was earning $6,500 a month as an
internal consultant to Ward. Therefore
his monthly benefit would be $4,821.20.
Mr. O’Reilly was required to submit a
copy of his monthly paystub to Hartford.

  On February 6, 1997, after a routine
internal review as the one-year initial
period concluded, Hartford sent Mr.
O’Reilly a letter informing him that his
benefits would terminate after February
13, 1997, because he was no longer
disabled within the meaning of the
Plan./1 Joanne Wiskow of Hart-ford had
reviewed Mr. O’Reilly’s medical
information, Radke’s reports and Mr.
O’Reilly’s paystubs before concluding
that he was no longer disabled. The
letter informed Mr. O’Reilly of his right
to appeal and to submit additional
information. Mr. O’Reilly requested some
documents from Hartford before he filed
his appeal and received medical
information and Radke’s reports.

  Mr. O’Reilly retained counsel and
appealed, submitting a Transferable
Skills Analysis ("TSA") performed by
avocational consultant whom Mr. O’Reilly
had retained for the appeal. Mr.
O’Reilly’s TSA, conducted by vocational
consultant Rita Wolven, could find no job
paying more than $45,000 per year which
was available to him. However, the TSA
took into account Mr. O’Reilly’s
depression, which was not covered under
the Plan. Patricia Swanson, Regional
Manager of Hartford’s claims office
handled the appeal. Swanson or her
deputies reviewed the same material that
had been before Wiskow and did some
additional research. Wiskow spoke with an
official at Ward who confirmed Mr.
O’Reilly’s consulting job; Fisher spoke
again with Radke who concluded that Mr.
O’Reilly’s physical condition alone did
not prevent him from doing his job;
Fisher reviewed the TSA performed by Mr.
O’Reilly’s consultant; Swanson spoke with
the actuarial department at Hartford and
Jim Weiss of the Chicago Society of
Actuaries. Hartford’s actuarial
department and Weiss identified numerous
positions a person with Mr. O’Reilly’s
experience and physical limitations could
perform. Some of these paid more than
$100,000 per year. With this information
before her, Swanson denied the claim.

B.

  Mr. O’Reilly filed suit under Section
502 of the Employee Retirement Income
Security Act ("ERISA") which provides
that "a civil action may be brought by a
participant or beneficiary . . . to
recover benefits due to him under the
terms of his plan, to enforce his rights
under the terms of the plan, or to
clarify his rights for future benefits
under the terms of the plan." 29 U.S.C.
sec. 1132(a). After discovery, Hartford
moved for summary judgment and the
district court granted Hartford’s motion.
First, the court excused Mr. O’Reilly
from ERISA’s exhaustion requirement;/2
because the executive who would hear his
appeal had already approved the denial of
benefits, any further appeal would be
futile. Second, the court found that
Hartford’s denial of benefits was within
a reasonable interpretation of the Plan.

II

DISCUSSION

A.

  We review the district court’s grant of
summary judgment de novo. See Quinn v.
Blue Cross & Blue Shield Assoc., 161 F.3d
472, 475 (7th Cir. 1998). In determining
whether an individual is entitled to
benefits, a court normally examines the
plan documents and interprets them de
novo under federal rules of contract
interpretation. Hammond v. Fid. & Guar.
Life Ins. Co., 965 F.2d 428, 429-30 (7th
Cir. 1992). However, if the plan gives
the administrator discretionary authority
to interpret the plan and to make
eligibility determinations, a court will
overturn that decision only if it is
arbitrary and capricious. See Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101,
115 (1989).

  The Plan at issue states that "The
Hartford has full discretion and
authority to determine eligibility for
benefits and to construe and interpret
all terms and provisions of the policy."
R.2, Ex.3 at 4. Therefore, we shall
review Hartford’s decision deferentially.
See Carr v. Gates Health Plan, 195 F.3d
292, 294 (7th Cir. 1999) (quoting Butler
v. Encyclopedia Brittanica, Inc., 41 F.3d
285, 288 (7th Cir. 1994)). Under the
arbitrary and capricious standard, we
shall not set aside the denial of a claim
if the carrier’s denial is based on "a
reasonable interpretation of the relevant
plan documents." Cuddington v. N. Ind.
Pub. Serv. Co., 33 F.3d 813, 817 (7th
Cir. 1994) (citations omitted). Mr.
O’Reilly concedes the applicability of
this standard of review, but argues that
we should scrutinize Hartford’s decision
more carefully because of its alleged
conflict of interest.

  The presence of a conflict of interest
does not change the standard of review.
See Firestone, 489 U.S. at 115; Perlman
v. Swiss Bank Corp. Comprehensive
Disability Protection Plan, 195 F.3d 975,
981 (7th Cir. 1999); Chojnacki v.
Georgia-Pacific Corp., 108 F.3d 810, 815
(7th Cir. 1997). It is a factor to be
considered when deciding whether an
administrator’s decision was arbitrary
and capricious. See Firestone, 489 U.S.
at 115. In the absence of specific
evidence of bias, we shall not presume
that there is a significant bias. See
Mers v. Marriott Int’l Group Accidental
Death & Dismemberment Plan, 144 F.3d
1014, 1020 (7th Cir. 1998); Cuddington,
33 F.3d at 816. Mr. O’Reilly has not
presented any specific evidence of a
conflict of interest and, therefore, we
shall not consider that factor in our
determination of the reasonableness of
Hartford’s decision.

  Mr. O’Reilly’s challenge to Hartford’s
decision runs along two tracks. First,
Mr. O’Reilly contends that Hartford’s
interpretation of the Plan was
unreasonable because it failed to find
him "totally disabled" when he was not
capable of earning at least 60% of his
pre-disability income. His second line of
argument urges us to reverse Hartford’s
decision because it failed "to engage in
an intensive and scrupulous independent
investigation" to insure that it acted in
the "best interest of the plan
beneficiaries." See Hightshue v. AIG Life
Ins. Co., 135 F.3d 1144, 1148 (7th Cir.
1998) (internal quotations omitted).
Because of this failure to investigate,
Mr. O’Reilly argues, Hartford could not
have based a reasonable decision on the
evidence before it.

B.

  We first address Mr. O’Reilly’s
contention that Hartford’s interpretation
of the Plan was unreasonable because it
failed to find him "totally disabled"
when he was not capable of earning at
least 60% of his pre-disability income.
At the outset, it is important to note
that the Plan has two different
disability periods. During the first
disability period, which lasts one year,
benefits are provided to a beneficiary
who is prevented by a disability "from
doing each and every duty of [his]
occupation." R.1, Ex.3. In contrast, for
the time following this twelve month
period, benefits are provided "for as
long as [the beneficiary] . . . [is]
prevented by Disability from doing any
occupation or work which [he is] or could
become qualified by: (1) training; (2)
education; or (3) experience." Id. The
first period is not at issue here; Mr.
O’Reilly received benefits during that
period because Hartford agreed that his
hearing loss had prevented him from
performing every duty of his position as
Chief Actuary. The dispute here focuses
on the second period and the
determination that Mr. O’Reilly is not
totally disabled because he is not unable
to perform any occupation. We must
determine whether Hartford’s
interpretation of this provision is a
reasonable interpretation of the relevant
plan documents.

  In Hammond v. Fidelity & Guaranty Life
Insurance Company, 965 F.2d 428, 429 (7th
Cir. 1992), we were confronted with a
plan that contained a provision very
similar to the one before us today. In
interpreting that plan under a de novo
standard, we held that "the insured
should be entitled to recover provided he
or she is unable to perform all the
substantial and material acts necessary
to the prosecution of some gainful
business or occupation." Hammond, 965
F.2d at 431. The plaintiff was required
to demonstrate that he was "disqualified
from all other forms of gainful
employment." Id. We believe that Hartford
acted well within its discretion in
determining that the language of the
present plan sets forth the same standard
as the one we determined to be applicable
in Hammond.

  Mr. O’Reilly argues that the Plan
requires a finding of total disability if
he is not able to earn at least 60% of
his pre-disability income. He maintains
that any position that does not provide
compensation at this level ought not be
considered an occupation for which he is
or could become qualified. After all, if
he was totally disabled he would receive
60% of his former income. However, the
plain language of the Plan provides for
no such replacement income standard. In
fact, there is no replacement income
standard of any kind. Hartford admits
that it does look to such a standard as
one factor in guiding its total
disability decision. When a claimant’s
replacement income is less than 60% of
pre-disability income, that factor weighs
in favor of a finding of total
disability. However, it is only one
factor, and the inability to earn 60% of
pre-disability income is neither a
necessary nor a sufficient condition of a
total disability finding.

  We think the record contains enough
evidence to support Hartford’s position
and that its interpretation is not an un
reasonable one. Indeed, Hartford’s
internal claims manual expressly states
that a replacement income standard is not
a hard and fast rule. Hartford correctly
points out that the application of such a
rule to highly paid employees like Mr.
O’Reilly would produce results
incompatible with the purpose of a total
disability policy. A person earning
$1,000,000 per year would be entitled to
total disability benefits if he were
capable of working in a job that paid him
$599,000 a year despite his physical
impairment. By contrast, an individual
earning $15,000 per year who made $9,000
per year while disabled would not be
entitled to total disability benefits
because his current income, unlike that
of the wealthy person, would constitute
60% of his pre-disability income.

  In any event, Hartford also identified
positions that paid $96,000, which was
60% of Mr. O’Reilly’s pre-disability
income. These positions were in the
actuarial field, and Mr. O’Reilly clearly
was qualified for these jobs by virtue of
his training and experience. Indeed, his
ability to perform the duties of his
actuarial consulting position
demonstrates that he had the skills and
ability to perform such positions.

C.

  We now turn to Mr. O’Reilly’s contention
that Hartford failed "to engage in an
intensive and scrupulous independent
investigation" to insure that it acted in
the "best interest of the plan
beneficiaries." See Hightshue v. AIG Life
Ins. Co., 135 F.3d 1144, 1148 (7th Cir.
1998) (internal quotations omitted).
Before denying benefits, administrators
of ERISA plans are required to have
enough evidence to allow them to make a
reasonable decision. See Quinn v. Blue
Cross & Blue Shield Assoc., 161 F.3d 472,
476-77 (7th Cir. 1998). ERISA does not
require a "full-blown" investigation, but
it does demand a "reasonable inquiry"
into a claimant’s medical condition and
his vocational skills and potential. See
id. If Hartford did not have evidence on
which to base its conclusion, it would
have acted unreasonably.

  Mr. O’Reilly contends that the evidence
was lacking in three respects. First,
Hartford did not perform a Transferrable
Skills Analysis ("TSA"). Second, his
consulting position was such that
Hartford could not reasonably have drawn
any inference of capability on his part
from it. Third, Hartford’s reliance on
Radke, its vocational/rehabilitation
consultant, was misplaced and
unreasonable. On each of these points, we
believe the evidence was sufficient and
that Hartford drew reasonable and
permissible inferences from it.

1.

  A TSA, properly conducted, takes a
claimant’s skills, experience and
disability into account and produces a
list of potential jobs. Mr. O’Reilly
retained a vocational consultant to
perform a TSA in support of his internal
appeal at Hartford. Using a computer
program, she could find no job where Mr.
O’Reilly could earn more than $45,000 per
year. Hartford considered performing a
TSA but then concluded that, given Mr.
O’Reilly’s high income, such an effort
would be futile. Further, Hartford
disputed the results of Mr. O’Reilly’s
TSA because the study assumed that Mr.
O’Reilly was disabled due to depression,
a condition excluded from coverage under
the Plan, and because it assumed that the
plaintiff was limited to sedentary work
which simply was not correct. It also
incorrectly assumed that Mr. O’Reilly was
totally deaf.

  Hartford did not perform its own TSA,
but there was sufficient evidence of
record about the futility of performing
such a study to make Hartford’s decision
reasonable. Hartford determined that a
TSA in this situation would be worthless
because it was incapable of identifying
any high paying jobs regardless of
physical capabilities or experience--it
was limited to entry level positions. The
claims manual states that a TSA may be
helpful in determining other fields in
which an individual may be able to find
employment, but Hartford already had
information that Mr. O’Reilly was
performing actuarial work. Moreover,
Hartford found that his years of training
and experience made him eligible for
other actuarial positions paying $96,000
or more. In short, there was no necessity
to inquire further about the
transferability of Mr. O’Reilly’s skills.


2.

  Mr. O’Reilly argues that the actuarial
work he was performing was not
substantial and that it was unreasonable
for Hartford to use his consulting
position with Ward as evidence of his
capabilities. Mr. O’Reilly maintains that
this position was temporary and required
very little actual work; he was only kept
on Ward’s payroll to assure a smooth
transition for his successor.
Nevertheless, this assignment was an
actuarial position and Mr. O’Reilly was
able to provide a service to Ward worth
$6,500 per month. While the job may not
have been exceptionally demanding, it is
evidence that Mr. O’Reilly is capable of
using his substantial skills and
experience to the benefit of an employer.
If someone is willing to pay Mr. O’Reilly
$78,000 per year to do an undemanding
job, Hartford was entitled to consider
this fact as evidence of his continuing
value in the marketplace. The limited
duration of the position does not make it
irrelevant to Hartford’s inquiry. Indeed,
in its research, Hartford had identified
other actuarial positions, paying as much
as $100,000 per year that Mr. O’Reilly
could perform. His service with Ward
permitted a reasonable inference that he
was physically capable of performing the
duties of those other positions Hartford
had identified. By contrast, under the
terms of the Plan, if an individual’s
services are no longer of significant
value to a prospective employer, then he
is totally disabled; Mr. O’Reilly paid to
protect against this eventuality.
Thedistrict court determined, and we
agree, that Mr. O’Reilly has not produced
any evidence that tends to show that he
was incapable of performing the duties of
the jobs that Hartford has identified.
Based on Mr. O’Reilly’s medical records
and Radke’s reports, Hartford developed
an assessment of Mr. O’Reilly’s physical
limitations. Swanson then directed an
inquiry tailored to Mr. O’Reilly’s skills
and his high income. She spoke with
Hartford’s actuarial department and
Weiss of the Chicago Society of
Actuaries. They were able to identify
numerous positions, within Mr. O’Reilly’s
field, which he was capable of filling.
Given Hartford’s efforts, Mr. O’Reilly
must show that Hartford’s conclusion is
unreasonable. The Plan requires that Mr.
O’Reilly be disabled from "any
occupation." Without evidence showing
that he could not have performed the jobs
Hartford identified as potentially
available to him, we cannot conclude that
Hartford’s decision was arbitrary and
capricious.

  This case is substantially different
from the situation with which we were
confronted in Quinn. There, the
claimsadministrator denied a claim for
benefits because she believed that the
claimant was capable of performing
another job, given the duties of her
previous one. Quinn, 161 F.3d at 476.
However, the administrator based this
decision on "her own notion of what a
payroll account assistant does." Id. We
noted that "[t]his, without more, is not
enough." Id. In this case, there is
significantly more. Rather than rely on
her own notion of what actuaries did, and
what jobs would be available to an
actuary with Mr. O’Reilly’s disabilities,
Swanson spoke with Hartford’s actuarial
department and with Jim Weiss of the
Chicago Society of Actuaries. In Quinn,
we stated that the administrator "should
have identified the skills necessary to
obtain another job and whether [the
claimant] possessed those skills." Id.
Here, Swanson did just that by turning to
those who would be more familiar with
actuarial work than any other group.

3.

  Finally, Mr. O’Reilly challenges
Hartford’s reliance on Radke’s views. Mr.
O’Reilly contends that Radke was not
qualified to assess Mr. O’Reilly’s
vocational capacity and that he was not
an independent examiner. Standing alone,
Radke’s reports may not have been enough
to support a denial of Mr. O’Reilly’s
claim. However, his reports were quite
detailed and included specific
information about Mr. O’Reilly’s
abilities and limitations. Hartford was
not required to perform a second
assessment of Mr. O’Reilly when it had
vocational reports before it. Hartford’s
agents also followed up with Radke,
speaking to him on the phone on several
occasions to fill in whatever gaps might
have been present in the reports. Mr.
O’Reilly has not offered any evidence
that would question the veracity of
Radke’s reports or his motivations. With
no evidence of bias or ineptitude, Radke
appears to be a qualified vocational con
sultant from an independent agency. His
reports describe Mr. O’Reilly’s working
conditions, his limitations and the
modifications necessary to overcome those
limitations. Combined with the rest of
the evidence before Hartford, reliance on
Radke’s reports was reasonable.

Conclusion

  Hartford’s interpretation of the Plan
was reasonable. The evidence before it
permitted a reasonable inference that Mr.
O’Reilly was not totally disabled within
the meaning of the Plan. Hartford’s
decision to deny Mr. O’Reilly’s claim was
not arbitrary and capricious. Therefore,
the decision of the district court is
affirmed.

AFFIRMED

FOOTNOTES

/1 Under the Plan:

"Totally Disabled means:

(1)   During the Elimination Period; and

(2)   for the next 12 months,

you are prevented by Disability from doing each
and every duty of your own occupation.
After that, and for as long as you stay Totally
Disabled, you are prevented by Disability from
doing any occupation or work for which you are or
could become qualified by:

(1)   training;

(2)   education; or

(3)   experience.

’Your own occupation’ includes similar job posi-
tions with the Policyholder which may be offered
to you with a rate of pay greater than 70% of
your Pre-disability Earnings for those enrolled
in Benefits Percentage Option I, and 60% of your
Pre-disability Earnings for those enrolled in
Benefit Percentage Option II."

R.1, Ex.3.

/2 Hartford challenges the district court’s ruling
on the exhaustion issue. Because Hartford’s
decision was reasonable and we are affirming the
district court’s grant of summary judgment, we
need not reach this question.
