                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


12-11-2007

Tylwalk v. Prudential Ins Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-4525




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                                                                NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                  _________

                                      NO. 06-4525
                                       _________

                                LOU ANN TYLWALK,
                                          Appellant

                                           v.

                      PRUDENTIAL INSURANCE COMPANY;
                             RELIANT ENERGY
                                 _________

                      Appeal from the United States District Court
                        for the Western District of Pennsylvania
                               (D.C. Civil No. 04-cv-222J)
                       District Judge: Honorable. Kim R. Gibson
                                       _________

                               Argued October 31, 2007

                BEFORE: RENDELL and NYGAARD, Circuit Judges,
                         and McCLURE,* District Judge

                               Filed: December 11, 2007
                                      _________

Carl A. Belin, Jr. [ARGUED]
Belin & Kubista
15 North Front Street
P.O. Box 1
Clearfield, PA 16830
  Counsel for Appellant



      *
       The Hon. James F. McClure, Jr., Senior Judge, United States District Court for the
Middle District of Pennsylvania, sitting by designation.
Jonathan Dryer
Salvatore A. Clemente [ARGUED]
Wilson, Elser, Moskowitz, Edelman & Dicker
601 Walnut Street
The Curtis Center, Suite 1130
Philadelphia, PA 19106
  Counsel for Appellee
                                    _________

                               OPINION OF THE COURT
                                     _________

McCLURE, District Judge.

       Appellant Lou Ann Tylwalk filed a complaint against appellee, Prudential

Insurance Company (“Prudential”) pursuant to the Employee Retirement Income Security

Act, 29 U.S.C. § 1001 et seq. (“ERISA”). After cross-motions for summary judgment

were filed, the district court granted Prudential’s motion and denied Tylwalk’s motion.

For the reasons provided below, we will reverse and remand.

                 I. FACTUAL AND PROCEDURAL BACKGROUND

       Tylwalk was a full-time employee of Reliant Energy (“Reliant”) working as a

control room operator and a member of Local 459 of the International Brotherhood of

Electrical Workers AFL-CIO (“the Union”). Under the collective bargaining agreement

between the Union and Reliant, employees were provided with life insurance which

included disability benefits (“the Plan”). The Plan provided disability benefits for

individuals who became “totally disabled” and also provided a one-time $20,000

disability payment for an employee who became “totally and permanently disabled.”



                                             2
       On August 24, 2001, Tylwalk was camping with her family when a large tree fell

onto a tent occupied by Tylwalk. As a result of the accident, Tylwalk suffered severe

head injuries. These injuries included a closed head injury, multiple facial skeletal

fractures, a fractured right frontal bone and supraorbital rim, nasal bone fractures,

blowout fracture of the right orbital floor, LeFort I maxillary fracture, fracture of the right

coronoid process of the mandible, and facial and scalp fractures and abrasions. Tylwalk

underwent an extensive recovery period involving multiple surgeries.

       Tylwalk’s treating physician was Dr. Guy A. Catone. On May 5, 2003, Dr. Catone

opined that “the prognosis for her facial injuries is good and she will be left with some

residual disabilities related to moderate double vision in the right eye.” Similarly, he

stated that “[t]he double vision and psychological problems will be permanent albeit

somewhat improved over time.”

       Tylwalk also received psychological counseling and treatment from Ronald

Lingle, a licensed psychologist. On May 16, 2003, Lingle opined that Tylwalk had

difficulty working with memory, spatial reasoning, speeded response, and processing

multiple sources of information. He stated that he had met with Tylwalk a total of thirty-

five times over a fourteen month period and that she could not return to her job as a

control-room operator now or in the future. Furthermore, he stated that “it has been over

a year and a half since the accident and brain injury, with very little further cognitive

recovery expected from this point.” Lingle also stated that “[h]er continued

reconstructive surgical status combined with her ongoing mood fluctuations would also

                                               3
preclude any other gainful work in the near future (2-3 years). Further prognosis past this

point will require neuropsychological, psychological, and occupational testing to

determine physical, cognitive, and emotional readiness for employment.” Finally, at the

end of the report, Lingle stated that he was “hopeful that she can eventually return to the

workforce in some capacity as her past excellent work record is a source of pride and self-

esteem for [her].”

       On March 24, 2004 in a letter, Lingle further opined:

               I would like to clarify that when [the May 16, 2003] report was
       written, Lou Ann was having a difficult time grieving the loss of her former
       active and working life and I did not want to imply in a document that she
       may have access too [sic], that she could never work in any capacity, ever
       again. As Lou Ann was/is on two antidepressants, and [sic] anti-anxiety
       pill, and a sleeping pill, I wanted to express some hope in my letter to you,
       even though I do not now and never believed that she would work in any
       capacity again. Please understand that in my profession, we write every
       note and letter as if the patient is reading them. As you know, they own the
       medical record and can see it at any time by law.

       Therefore, as Lou Ann Tylwalk’s treating psychologist, it is my opinion
       that Lou Ann Tylwalk is totally and permanently disabled from performing
       any work in any capacity for the remainder of her life.

(emphasis in original).

       On February 28, 2003, an Administrative Law Judge for the Social Security

Administration determined that Tylwalk was disabled within the meaning of the Social

Security Act. The ALJ concluded that Tylwalk’s mental condition met the requirements

of Listing 12.02, which is met “when the claimant has psychological or behavioral

abnormalities associated with brain dysfunction, with a history and physical examination


                                             4
or laboratory tests demonstrating the presence of a specific organic factor judged to be

etiologically related to the abnormal mental state and loss of previously acquired

functional abilities.”

       Tylwalk applied for disability benefits under the Plan. On September 22, 2003,

Prudential determined that Tylwalk was “totally disabled” under the Plan but that there

was no evidence that she was “totally and permanently disabled” and therefore she was

not entitled to the one-time $20,000 disability payment. On December 22, 2003,

Prudential denied Tylwalk’s request for reconsideration. On June 1, 2004, Prudential

denied Tylwalk’s appeal.

       Following the final denial, Tylwalk filed a complaint in the Court of Common

Pleas of Clearfield County, Pennsylvania pursuant to ERISA. The action was removed

by Prudential to the United States District Court for the Western District of Pennsylvania.

On September 28, 2006, after cross-motions for summary judgment were filed, the district

court granted Prudential’s motion and denied Tylwalk’s motion. This appeal followed.

                    II. JURISDICTION AND STANDARD OF REVIEW

       The district court had jurisdiction pursuant to ERISA, 29 U.S.C. § 1132(e)(1). We

have appellate jurisdiction to review the district court’s final order pursuant to 28 U.S.C.

§ 1291.

          We exercise plenary review of the district court’s resolution of cross-motions for

summary judgment. Brentwood Med. Assoc. v. United Mine Workers of Am., 396 F.3d




                                               5
237, 240 (3d Cir. 2005) (citation omitted). Therefore, we apply the same test the district

court applied: 1) whether there are no material facts in dispute; and 2) whether one party

is entitled to judgment as a matter of law. Int'l Union, United Mine Workers of Am. v.

Racho Trucking Co., 897 F.2d 1248, 1252 (3d Cir. 1990) (citing Fed. R. Civ. Pro. 56(c)).

       Under ERISA, an administrator’s decision to deny benefits is by default reviewed

de novo unless the plan gives the administrator discretionary authority to determine the

employee’s eligibility. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109

S.Ct. 948, 103 L.Ed.2d 80 (1989). If the plan gives the administrator discretionary

authority, then the decision is reviewed for abuse of discretion. Id. at 115. In the instant

case, there is no dispute that the Plan gives the administrator discretionary authority to

determine eligibility.

       In Firestone, the Supreme Court noted that if the administrator has discretion but is

operating under a conflict of interest, that conflict should be weighed as a factor when

considering whether there was an abuse of discretion. Id. In accordance with this

requirement, we established a sliding scale approach in Pinto v. Reliance Standard Life

Ins. Co., 214 F.3d 377, 392 (3d Cir. 2000). The sliding scale allows for the court to

intensify its scrutiny of the administrator’s decision to match the degree of conflict that

may be present in the administrator’s decision-making process. Id.

       Recently, in Post v. Hartford Ins. Co., we elaborated on the process set out in

Pinto. 501 F.3d 154, 160-165 (3d Cir. 2007). We emphasized that the sliding scale




                                              6
approach requires the consideration of both structural and procedural factors. Id. at 162

(citing Pinto, 214 F.3d at 392-93). The structural inquiry focuses on financial incentives

to deny claims while the procedural inquiry focuses on how the administrator treated the

particular claimant. Id.

       Turning first to the structural inquiry in the instant case, we begin by noting that in

Pinto, we listed four nonexclusive structural factors to consider: “1) the sophistication of

the parties; 2) the information accessible to the parties; 3) the exact financial arrangement

between the insurer and the company; and 4) the status of the fiduciary, as the company’s

financial or structural deterioration might negatively impact the ‘presumed desire to

maintain employee satisfaction.’” Pinto, 214 F.3d at 392. The only factor which appears

to have any applicability to the instant case is the financial arrangement of the plan. In

the instant case, the record is scant as to the precise financial arrangement between the

employer and plan administrator. In fact, the record simply contains a stipulation that

states that “the claim review is handled by the Plan Administrator Prudential Insurance

Company” who “has the sole discretion to interpret the terms of the [contract], to make

factual findings, and to determine eligibility for benefits.” Furthermore, the stipulation

states that “Prudential also funds the plan through insurance.” Finally, the stipulation

states that “the proper standard of review is a sliding scale of heightened scrutiny of the

arbitrary and capricious standard.” Thus, although the exact financial arrangement is

unclear, Prudential has stipulated to the fact that it both funds and administers the plan.




                                              7
Therefore, the fact that Prudential has a financial incentive to deny claims warrants a

heightening of our review.

       Turning to the procedural inquiry, we now consider any procedural irregularities

that raise suspicion in the plan administrator’s decision-making. We have again already

set out a nonexclusive list of procedural irregularities to consider: 1) reversal of position

without additional medical evidence; 2) self-serving selectivity in the use and

interpretation of physician’s reports; 3) disregarding staff recommendations that benefits

be awarded; and 4) requesting a medical examination when all the evidence indicates

disability. Post, 501 F.3d at 165 (citations omitted). We find that the instant case does

present some procedural irregularity. As we will discuss in more detail in our analysis of

Prudential’s decision, it appears that Prudential completely disregarded the opinion

expressed in Lingle’s March 24, 2004 letter when it denied Tylwalk’s appeal on June 1,

2004. We find this especially relevant because Prudential had already heavily relied on

Lingle’s opinion when it made its September 22, 2003 and December 22, 2003 denials.

In fact, it appears that the only reason Lingle sent the letter was because he believed that

Prudential had misinterpreted the opinions he expressed in his previous report. We

believe this irregularity constitutes a selective use of medical reports and warrants yet

another heightening of our review.

       Having found both that Prudential has a strong financial incentive to deny claims

(a weighty structural factor) and that Prudential selectively used medical reports (a




                                              8
weighty procedural factor), we will conduct a significantly heightened form of arbitrary

and capricious review. Under this review, we will give less deference to Prudential than a

pure arbitrary and capricious review, but our review will not be a de novo review.

Therefore, our inquiry is not whether Prudential made the same decision as we would

have made. Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 45 (3d Cir. 1993) (citation

omitted). Rather, we will searchingly review both the merits and the process to determine

whether Prudential’s decision to deny permanent disability was the product of reasoned,

disinterested discretion. Post, 501 F.3d at 168.

                                    III. DISCUSSION

             A. Prudential’s Decision to Deny Permanent Disability Benefits

       As a preliminary matter, we note that Prudential was not required to determine that

Tylwalk was not “totally and permanently disabled” in order to deny her the $20,000

permanent disability benefit. Instead, it only had to conclude that there was not sufficient

evidence to determine that she was “totally and permanently disabled.” In other words,

Tylwalk had to show the permanence of her disability, rather than Prudential’s having to

show a lack of permanence.

       On September 22, 2003, Prudential made its first denial of Tylwalk’s claim for

permanent disability. When Prudential made its decision, it had before it the medical

reports of Dr. Catone and Lingle, as well as the Social Security Administration’s decision.

The claim was referred to Prudential’s medical director, Dr. Kowalski, who concluded




                                             9
that the medical records did not support a finding of permanent disability. In its letter of

denial sent to Tylwalk, Prudential relied on Lingle’s reference to two to three years of

recovery and his statement that he was hopeful that Tylwalk would be able to return to the

workforce in some capacity in the future.

       On November 26, 2003, Tylwalk submitted an appeal of the denial. In her request,

Tylwalk emphasized her belief that Prudential had taken Lingle’s statement out of context

and that the report read as a whole expresses the opinion that Tylwalk is permanently

disabled. On December 22, 2003, Prudential denied the request for reconsideration and

once again found that there was no evidence to suggest that Tylwalk was permanently

disabled. Prudential again relied on Lingle’s reference to two to three years of recovery

and his statement that he was hopeful that Tylwalk would be able to return to the

workforce in some capacity.

       With respect to these first two denials, it is important to note that Prudential had

yet to receive Lingle’s March 24, 2004 letter in which he clarified his earlier report and

stated that he has never believed that Tylwalk would be able to work in any capacity ever

again. This is important because our heightened form of arbitrary and capricious review

is limited to the record before the plan administrator. Kosiba v. Merck & Co., 384 F.3d

58, 67 n.5 (3d Cir. 2004) (citing Mitchell v. Eastman Kodak Co., 113 F.3d 433, 440 (3d

Cir. 1997)).

       On April 5, 2004, Tylwalk submitted her second appeal. This appeal did contain




                                             10
Lingle’s March 24, 2004 letter. Although not entirely clear from the record, it appears

that the letter was not sent to Dr. Kowalski because the claims examiner concluded that it

did not contain any objective medical evidence requiring a physician’s review. Thus,

having dismissed Lingle’s letter, Prudential once again rejected Tylwalk’s claim of

permanent disability on June 1, 2004.

                      B. Was the Decision Arbitrary and Capricious?

       Having already concluded that the instant case warrants a significantly heightened

form of arbitrary and capricious review, we will first consider whether Prudential’s

decisions were arbitrary and capricious under a pure arbitrary and capricious review.

Only if we conclude that the decisions were not arbitrary and capricious must we consider

whether the heightening of our review and the decreased deference that it requires

warrants a different conclusion.

       Even considering Lingle’s statements about returning to work, we have concerns

with Prudential’s initial denial on September 22, 2003 and the denial of her first appeal on

December 22, 2003. When making these denials, Prudential had before it the medical

reports from Dr. Catone and Lingle which both appeared to opine that Tylwalk’s injuries

were permanent. In his report, Dr. Catone opined that “[Tylwalk] will be left with some

residual disabilities related to moderate double vision in the right eye” and that “[t]he

double vision and psychological problems will be permanent albeit somewhat improved

over time.” Similarly, Lingle opined that Tylwalk had difficulty working with memory,




                                             11
spatial reasoning, speeded response, and processing multiple sources of information” and

that there would be “very little further cognitive recovery expected from this point.”

       Considering these opinions, we do not understand how Prudential could conclude

that Tylwalk was “totally disabled” but was not “totally and permanently disabled” when

the very same issues that led Prudential to the conclusion that she was “totally disabled”

were opined to be permanent by Dr. Catone and Lingle. If we were reviewing this case

de novo, we would have never relied on Lingle’s discussions about returning to work as

evidence that her injuries were not permanent. Instead, we would have relied on Dr.

Catone and Lingle’s opinions regarding the permanence of her injuries. Nevertheless, we

will decline to rule on whether Prudential’s first two denials were arbitrary and

capricious. We simply emphasize that these first two denials are suspect, which only

strengthens our belief that the third denial was arbitrary and capricious.

       We now turn to Prudential’s third denial which occurred on June 1, 2004. Unlike

the previous two denials, Prudential did have Lingle’s March 24, 2004 letter before it

when it made this denial. Yet, the letter was discounted because Prudential believed that

it contradicted Lingle’s prior report and because it contained no medical evidence.

       At the very least, Lingle’s prior report was subject to interpretation as to whether

he opined that Tylwalk’s disability was permanent. We say at the very least because, as

we have just discussed, interpreting the prior report as suggesting that her disability was

not permanent was borderline unreasonable. The other more reasonable interpretation is




                                             12
that the report expresses the opinion that Tylwalk is permanently disabled. Considering

that the earlier report is open to interpretation, it is inaccurate to characterize the March

24, 2004 letter as a contradiction of the earlier report. This could only be the case if the

earlier report unequivocally expressed the opinion that her disability was not permanent.

Rather, the letter clarifies any ambiguity that may have existed in his report and should

have indicated to Prudential that it had misinterpreted the opinion expressed in the earlier

report. Similarly, we do not believe that the letter can be discounted due to a lack of

medical evidence. Because the letter’s purpose was to clarify his earlier report, rather

than a change in his opinion, he was obviously still relying on the medical evidence in the

earlier report.

         Having found that there is no basis to disregard Lingle’s March 24, 2004 letter, we

believe our decision becomes quite simple. Lingle’s letter unequivocally expresses an

opinion of permanent disability. Furthermore, Dr. Catone’s report suggests that

Tylwalk’s vision problems are permanent. Finally, there is no evidence in the record that

would contradict either of these two opinions, such as an independent medical review

performed by Prudential. Therefore, we find that Prudential’s decision to deny permanent

disability on June 1, 2004 was arbitrary and capricious even under a pure arbitrary and

capricious standard of review, and this is sufficient to warrant a reversal of the district

court.




                                              13
                                   IV. CONCLUSION

       Because Prudential’s decision to deny permanent disability benefits was arbitrary

and capricious, we reverse the District Court’s grant of summary judgment in favor of

Prudential and grant Tylwalk’s motion for summary judgment. We will remand the case

for a determination of whether an award of attorney’s fees is appropriate.




                                            14
