                 NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 14a0941n.06

                                         No. 14-3095
                                                                                     FILED
                         UNITED STATES COURT OF APPEALS                        Dec 22, 2014
                              FOR THE SIXTH CIRCUIT                        DEBORAH S. HUNT, Clerk

DIANE TONGUETTE,                                )
                                                )
       Plaintiff-Appellant,                     )
                                                )
                                                              ON APPEAL FROM THE
v.                                              )
                                                              UNITED STATES DISTRICT
                                                )
                                                              COURT     FOR     THE
SUN LIFE AND              HEALTH      INSURANCE )
                                                              SOUTHERN DISTRICT OF
COMPANY (U.S.),                                 )
                                                              OHIO
                                                )
       Defendant-Appellee.                      )
                                                )



       Before: SUTTON and KETHLEDGE, Circuit Judges; ROSENTHAL, District Judge.*

       KETHLEDGE, Circuit Judge. Del Tonguette died during a 91-day period in which,

under the terms of an ERISA plan, he was entitled to convert his group life-insurance policy to

an individual one. His widow, Diane Tonguette, thereafter requested payment of Del’s life-

insurance benefit. The plan’s administrator, Sun Life—which is also the insurer that would pay

the benefit—denied payment under its reading of the plan’s terms. Diane later brought this

lawsuit under ERISA, 29 U.S.C. § 1132(a), claiming that Sun Life’s denial was contrary to the

plan’s terms. The district court granted summary judgment to Sun Life. We reverse.

       Del Tonguette began work at LoBue Associates in August 2009. LoBue maintains an

ERISA benefits plan administered by Sun Life. Under that plan, Del’s benefits package included

group life-insurance coverage in the amount of $95,000. Del left LoBue’s employ on October

*
  The Honorable Lee H. Rosenthal, Judge for the Southern District of Texas, sitting by
designation.
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

16, 2009, at which time, per the terms of the group policy, his coverage ended. But the plan gave

Del the option to convert his group life-insurance policy to an individual one. As a general

matter, under the plan, that option remains available only for 31 days. That period is extended to

91 days, however, if neither LoBue nor Sun Life provides a departing employee with notice of

the option.

       Del Tonguette neither received notice of his conversion option nor exercised it before he

died. That Del did not receive notice of his conversion option means that his conversion period

ran for the full 91 days, until January 15, 2010. But Del died six days before then, on January 9,

2010. His widow, Diane Tonguette (whom we refer to as “Tonguette”), thereafter requested

payment of his death benefit under the group policy, citing a plan provision entitled “Death

within the Conversion Period.”        The plan’s administrator, Sun Life, read that provision

differently and denied payment. The district court agreed with Sun Life’s reading. Tonguette

appealed.

       LoBue’s plan gives Sun Life discretion with respect to its determinations whether a plan

participant is eligible for benefits. To the extent a plan administrator exercises such discretion in

denying a claim for benefits, we uphold its decision so long as the decision is not arbitrary or

capricious. Kovach v. Zurich Am. Ins. Co., 587 F.3d 323, 328 (6th Cir. 2009). But a plan

administrator does not have discretion to adopt an interpretation of the plan contrary to its

unambiguous terms. Adams v. Anheuser-Busch Companies, Inc., 758 F.3d 743, 747–48 (6th Cir.

2014). And “[w]hether plan language is ambiguous is a legal question that we review de novo.”

Id. at 747. Finally, in determining whether plan language is ambiguous, “we apply federal

common law rules of contractual interpretation[.]” Perez v. AETNA Life Ins. Co., 150 F.3d 550,

556 (6th Cir. 1998) (en banc).


                                                -2-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

       The provision at the heart of the dispute here provides in full:

       Death within the Conversion Period

       Claim may be made for a death benefit if you die during the 31 day period during
       which your insurance may be converted to an individual policy. (See section
       “Conversion Privilege”.)

       The terms of this benefit are as follows:

       1. The amount of your Life Insurance that may be converted will be payable as a
          claim under the group policy. No Accidental Death and Dismemberment
          benefit, if any, will be paid under the terms of this section.

       2. This benefit will apply whether or not you have:

               a) applied for a conversion policy; or

               b) paid the first premium.

       3. If a conversion policy has been issued:

               a) it must be given back to the insurer; and

               b) no claim can be made under it other than for the return of premiums
                  paid.

(Italicization added.)

       Under this provision, if a plan participant dies within the period described by the

italicized language, Sun Life will pay the participant’s death benefit (in Del’s case $95,000)

under the group insurance policy. The dispute here concerns the length of the period described

by the italicized language. Specifically, as the parties acknowledged at oral argument, the

question presented is whether the italicized language refers to the length of the applicable

conversion period under the plan (Tonguette’s view), or instead refers only to the first 31 days

following the termination of group coverage, even if the conversion period runs longer than 31

days (Sun Life’s view).



                                                   -3-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

       The meaning of this language is straightforward in cases where the plan participant is

given notice of the conversion option: under either Tonguette’s view or Sun Life’s, the italicized

language refers to a single 31-day period that begins on the date the participant leaves the

company.     But—at least when considered in isolation—the italicized language becomes

grammatically incoherent in cases where, as here, the conversion period extends beyond 31 days.

The language refers to “the 31 day period during which your insurance may be converted to an

individual policy.” As used in this clause, “the” is a definite article, meaning there is only one

31-day period in which the participant can convert. In cases where the conversion period is more

than 31 days, however, there is more than one 31-day period in which the participant can

convert. For example, in a case where the period runs for 33 days, there are three such 31-day

periods: one from days 1-31, a second from days 2-32, and a third from days 3-33. In Del’s

case, where the conversion period ran for 91 days, there were 61 different 31-day periods—

starting as early as day 1 and as late as day 61—in which he could have converted. Thus, in

these cases, the grammatical premise of the italicized language—that there is only one 31-day

period in which the participant can convert—is absent.

       The parties try to resolve this incoherency by, in effect, adding one word or subtracting

two, respectively, from the italicized language.     Sun Life would add a word, reading this

language to mean “the initial 31 day period during which your insurance may be converted to an

individual policy.” Tonguette would subtract the words “31 day”, reading the language to mean

“the [] period during which your insurance may be converted to an individual policy.”

       Read in isolation, then, the italicized language appears ambiguous.        This ambiguity

recedes, however, when one looks at the language of the relevant “Part” of the plan as a whole.

That language includes two indications as to how to resolve the incoherency here—and both of


                                               -4-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

them favor Tonguette’s interpretation. The first is the provision’s heading, which cannot be used

to create ambiguity, but can be used to resolve it. See, e.g., Int’l Multifoods Corp. v. Comm’l

Union Ins. Co., 309 F.3d 76, 85 (2d Cir. 2002). And here the provision’s heading resolves the

ambiguity cleanly, by making clear that the italicized language refers to, as the heading says,

“death within the conversion period.”

       The second indication comes in a provision entitled “Notice of Conversion Period[,]”

which provides in relevant part: “Written notice of the Conversion Privilege and its duration will

be given to you at least 15 days before the end of the 31 day period following termination of

coverage under the Group Policy.” (Emphasis added). This italicized language—which comes

in the very next provision after the one at issue here—conveys exactly the same meaning that

Sun Life tries to give to “the 31 day period during which your insurance may be converted to an

individual policy” in the preceding provision.         And that the two provisions use markedly

different language, in such close proximity, is reason to read them differently. See, e.g., Smith v.

ABS Industries, Inc., 890 F.2d 841, 846 (6th Cir. 1989).

       One might respond that Tonguette’s reading of the plan allows her to obtain a death

benefit even though Del paid no premiums for almost three months after his group coverage

terminated, rather than just one month. But that is an equitable point, not a textual one; and even

taken on its own terms, the equities of that point are offset by the greater dereliction of failing to

provide notice of the conversion option for three months, rather than just one. That dereliction is

significant in part because a person losing his insurance could easily overlook that his policy—

which he might have bought years earlier—even includes a conversion option.

       In summary, when read in the broader context of the plan, there are two significant

reasons to favor Tonguette’s reading of the disputed language, and none to favor Sun Life’s.


                                                 -5-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

Moreover, there is a difference between vague terms—whose vagueness might give rise to

discretion—and poorly drafted terms that, after a careful reading, demonstrably favor one

interpretation over another. Here, a careful reading of the plan’s terms reveals that Tonguette’s

interpretation is demonstrably better than Sun Life’s.       As a plan fiduciary, Sun Life was

obligated to read the plan carefully; and it lacked discretion to reject Tonguette’s interpretation

of the disputed language here. Its interpretation therefore was arbitrary and capricious.

       The district court’s judgment is reversed, and the case remanded for proceedings

consistent with this opinion.




                                                -6-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

       SUTTON, Circuit Judge, dissenting.         Sun Life and Tonguette share some common

ground in this case. They agree that Sun Life has interpretive authority over this group life

insurance plan, meaning that the courts will accept its interpretation so long as it is not arbitrary

and capricious. They agree that there is some facial ambiguity over whether the “death benefit”

provided by the life insurance plan applies only to a death that occurs within 31 days after

separation from the company or extends to a death that occurs up to 91 days after separation if

the employer or Sun Life fails to give written notice of the option to convert the group policy to

an individual policy. And they seem to agree that the search for meaning does not end merely

because a first reading of the relevant provisions suggests facial ambiguity.


       In attempting to resolve this ambiguity, Tonguette focuses on the fault of Sun Life and

the employer in failing to give notice of the conversion option during the initial 31-day period

and the plan’s provision for a 60-day extension of the conversion period when no notice is given.

So long as the employer and Sun Life give notice of the conversion option within 15 days of an

employee’s separation from the company in the future, Tonguette points out, the death benefit

will apply only to deaths that occur within 31 days of a departure from the company. The

insurance company in short holds the key to any undue consequences caused by this

interpretation and next time around can simply turn the key—give notice—and avoid this

problem.


       Tonguette’s reading, it seems to me, overstates the value of imposing the risk of a lack of

notice on the insurance company/employer and understates the nature of the death benefit. To

my mind, it is helpful to think about the relevant provisions as creating two things: (1) a death

benefit that is given no matter what happens and is free because it does not require a conversion

of the policy or the payment of any premiums (and indeed requires the return of any premiums
                                                -7-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

paid) and (2) a life insurance conversion option (not unlike a COBRA medical insurance

conversion option) that contains a conversion period of at least 31 days and as many as 91 days if

no written notice of the conversion option is given.


       Once we separate these two concepts, an uncomfortable reality of Tonguette’s

interpretation emerges. It reads “the 31 day” out of existence. Recall the language of the key

sentence: “Claim may be made for a death benefit if you die during the 31 day period during

which your insurance may be converted to an individual policy.” Under Tonguette’s reading, the

key phrase (“the 31 day”) does no work, an interpretive consequence we try to avoid where

possible. Loughrin v. United States, 134 S. Ct. 2384, 2390 (2014). Part 6 of Del’s policy, which

contains all of the provisions at issue here, mentions a 31-day time period six times. The other

five references concern the 31 days immediately following the date the policy terminates: the

date of separation from the company. It would not seem to be arbitrary to use that meaning here.


       Nor is it obvious how best to account for the incentives of the parties in this setting. Best

I can tell, the employer has no skin in the game from a monetary perspective. Leaving the death

benefit window at 31 days or extending it to up 91 days would not affect the employer one way

or the other, as the insurance company pays the claim. Nor does it seem that Sun Life would

have any incentive to delay notifying a former employee of his conversion rights. The company

always has an incentive to provide notice: money. When an insured converts a lapsed group

policy into an individual policy, Sun Life collects a stream of new premium payments. Think of

notice of a conversion right as the most promising form of advertising an insurance company

ever provides. Any other approach to the issue assumes that Sun Life has a most unorthodox

business plan for an insurance company.



                                                -8-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

       No doubt, Tonguette’s widow suffered if the couple did not know about the conversion

option and if they would have converted the policy to an individual policy had they been told of

the option before he unexpectedly died. But even this perspective requires qualification. The

Tonguettes were not fault free. The employee handbook warns employees that all individual

coverage “terminates . . . when you leave your employment.” R. 31-1 at 24. And it warns

employees that “[i]f you cease active work, see your supervisor to determine what arrangements,

if any, may be made to continue your coverage beyond the date you cease active work.” Id.

The record confirms only that Del Tonguette did not receive “written notice” of the conversion

option—the triggering event for extending the conversion option window—not that he did not

have actual notice of the option.


       Even if we assume Del Tonguette had no notice, whether actual or written, of the

conversion option, consider what Tonguette’s reading of the plan means in other settings.

Consider for example how this would play out for an employee who had actual notice of the

option, hardly an unusual scenario for a responsible employee who voluntarily leaves a

company, but no “written notice” of the option.        He or she could do one of two things:

(1) convert immediately and still receive a three-month free death benefit or (2) wait to convert

until day 91 but be covered before then anyway. As interpretive consequences go, neither one of

these possibilities seems like a probable way of capturing the point of this “death benefit.”

Adding to my doubts on this score is the reality that the provision says the death benefit will

apply “whether or not you have . . . paid the first premium.” As shown, more than one premium

could be paid in a 91-day window in this scenario. As I see it and as I think Sun Life could see it

without being arbitrary and capricious, the policy provides a 31-day free death benefit (no

questions asked, no premiums needed, no conversion needed) and a 91-day window to convert

                                                -9-
No. 14-3095
Tonguette v. Sun Life and Health Insurance Company (U.S.)

(if the employer or Sun Life fails to give written notice of the conversion option). The majority

seeing things differently, I respectfully dissent.




                                                 -10-
