Lee v. Sun Life Assurance Co. (676 F. Supp. 2d 1127, 2009)

OPINION AND ORDER

REDDEN, District Judge:

On June 9, 2009, Magistrate Judge Janice Stewart filed her Findings and Recommendation (doc. 32) that the court deny defendant’s motion for summary judgment (doc. 19), grant plaintiffs cross-motion for summary judgment (doc. 25), and enter judgment in favor of plaintiff.

The matter is now before me pursuant to 28 U.S.C. § 636(b)(1)(B) and Federal Rules of Civil Procedure 72(b) and 54(d)(2)(D). The district court is not bound by the recommendations of the magistrate judge, and “may accept, reject, or modify the recommended decision, receive farther evidence, or recommit the matter to the magistrate judge with instructions.” 28 U.S.C. § 636(b)(1); Fed. R.Civ.P. 72(b). When either party timely objects to any portion of the magistrate’s Findings and Recommendation, the district court must conduct a de novo review of those portions of the magistrate’s report. 28 U.S.C. § 636(b)(1)(C); Fed. R.Civ.P. 72(b); McDonnell Douglas Corp. v. Commodore Bus. Machines, 656 F.2d 1309, 1313 (9th Cir.1981), cert. denied, 455 U.S. 920, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982). The district court is not, however, required to review the factual and legal conclusions to which the parties do not object. Thomas v. Arn, 474 U.S. 140, 149, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985): United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir.2003).

Defendant timely filed objections to Magistrate Judge Stewart’s findings that: (1) defendant’s denial of plaintiffs accidental death and dismemberment (“AD & D”) claim should be reviewed with a “high level of skepticism” because the claim determination was affected by a “significant” conflict of interest; and (2) defendant’s determination that plaintiffs claim was barred under the AD & D plan’s criminal act exclusion was an abuse of discretion. I have, therefore, given those portions of the Findings and Recommendation a de novo review. I agree with Magistrate Judge Stewart’s analysis and conclusions.

Magistrate Judge Stewart’s finding that defendant operated under a “significant” conflict of interest in denying plaintiffs AD & D claim was based on defendant’s: (1) failure to proffer evidence that its structural conflict of interest did not influence the decision-making process; (2) failure to adequately investigate plaintiffs claim; and (3) improper emphasis on evidence favorable to the denial of benefits, while ignoring evidence favorable to a grant of benefits. With respect to defendant’s failure to adequately investigate plaintiffs claim, Magistrate Judge Stewart found that defendant failed to conduct “any independent investigation of the circumstances surrounding Mr. Lee’s death,” and never sought or obtained:

any evidence concerning the reasoning behind the design of the trestle, including its pedestrian-friendly features such as a walkway, handrails, and a safety island; ... any actuarial analysis regarding whether it was highly likely that crossing the trestle would result in serious injury or death; ... any evidence regarding when the “No Trespassing” sign(s) were installed and the reasoning behind their design and placement; ... any further evidence concerning the number of pedestrians who cross the trestle on a daily basis; ... any evidence that the police had ever cited or prosecuted pedestrians with criminal trespass as a result of walking on or across the trestle; and ... any statement from representative(s) of the railroad companies whose name(s) are on the “No Trespassing” sign(s).

Findings and Recommendation, at 1137. Magistrate Judge Stewart also found that defendant’s first explanation for its denial of benefits — that Mr. Lee’s death was not due to “accidental means” — “ignores and is contrary to the only relevant evidence in the record.” Id. at 1138. Balancing all of these case-specific factors, as the Ninth Circuit has instructed, Magistrate Judge Stewart properly concluded that the record evidenced a “significant” conflict of interest and therefore, defendant’s stated bases for its denial were subject to enhanced skepticism. Montour v. Hartford Life & Accident Insurance, 588 F.3d 623, 629-31 (9th Cir.2009).

I am not persuaded that defendant’s “new” evidence proves otherwise. That defendant has taken steps to reduce potential bias and promote accuracy in its claims review process does not undermine Magistrate Judge Stewart’s conclusion that defendant’s decision in this case was affected by a significant conflict of interest. Defendant’s “new” evidence does nothing to rebut Magistrate Judge Stewart’s findings that defendant failed to adequately investigate plaintiffs claim, improperly emphasized evidence favorable to the denial of benefits, ignored evidence favorable to a grant of benefits, and provided a reason for denial that was not supported by any evidence in the record. Weighing all of these case-specific factors together, including defendant’s structural conflict of interest, I agree with Magistrate Judge Stewart that defendant’s denial of benefits should be viewed with enhanced skepticism.

Viewing defendant’s decision with a heightened level of skepticism, I agree with Magistrate Judge Stewart’s conclusion that defendant abused its discretion by: (1) concluding that Mr. Lee’s death was “not accidental” without providing any explanation; and (2) improperly ignoring substantial evidence in the record indicating that the train trestle was “open to the public” under Oregon law. Accordingly, I ADOPT Magistrate Judge Stewart’s Findings and Recommendation in its entirely. I DENY defendant’s motion for summary judgment (doc. 19), and GRANT plaintiffs cross-motion for summary judgment (doc. 25).

IT IS SO ORDERED.

FINDINGS AND RECOMMENDATIONS

STEWART, United States Magistrate Judge:

INTRODUCTION

Plaintiff, Susan E. Lee, filed this action to recover accidental death and dismemberment (“AD & D”) benefits under an employee benefit plan sponsored by her employer, Triad Hospitals, Inc. (“Triad”). Triad funded the AD & D benefits through a group insurance plan (“AD & D Plan”) issued and underwritten by defendant, Sun Life Assurance Company of Canada (“Sun Life”), which is also the claims administrator for the AD & D Plan. Plaintiff, a Triad employee, obtained $500,000 in coverage under the AD & D Plan for her husband, James Lee (“Mr. Lee”).

Mr. Lee died on July 22, 2006, the day after he was struck by an oncoming train while on a railroad trestle in McMinnville, Oregon. Plaintiff then made a claim for $500,000 in benefits under the AD & D Plan in connection with his death. After Sun Life denied her claim, plaintiff filed a Complaint in the Circuit Court of the State of Oregon for Yamhill County, alleging a breach of contract claim against Sun Life. On January 31, 2008, Sun Life timely removed that action to this court based on complete preemption under the Employee Retirement Income Security Act, 29 USC §§ 1001-1461 (“ERISA”), and diversity jurisdiction.

On September 29, 2008, 2008 WL 4449875, this court granted a previous motion for summary judgment filed by Sun Life and clarified that Lee’s breach of contract claim is preempted by ERISA. Order (docket # 18), adopting Findings and Recommendation (docket # 15). Plaintiffs claim is therefore properly reviewed as an ERISA claim to recover benefits under the AD & D Plan, and the plan administrator’s decision to deny benefits under the AD & D Plan is reviewed by the court for an abuse of discretion as modified by the standards set forth in Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir.2006).

Sun Life then filed a second Motion for Summary Judgment (docket # 19), contending that Lee’s claim is barred under the criminal act exclusion of the AD & D Plan. In response, plaintiff filed a Cross Motion for Summary Judgment (docket # 25), asserting that a structural conflict of interest mandates the lowest level of deferential review and that the criminal act exclusion is inapplicable to Mr. Lee’s act of walking across the train trestle or is ambiguous and must be interpreted in her favor. For the reasons that follow, plaintiffs motion should be granted, Sun Life’s motion should be denied, and judgment should be entered in favor of plaintiff.

LEGAL STANDARD

FRCP 56(c) authorizes summary judgment if “no genuine issue” exists regarding any material fact and “the moving party is entitled to judgment as a matter of law.” The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party does so, the nonmoving party must “go beyond the pleadings” and designate specific facts showing a “genuine issue for trial.” Id. at 324, 106 S.Ct. 2548, citing FRCP 56(e). The court must “not weigh the evidence or determine the truth of the matter, but only [determine] whether there is a genuine issue for trial.” Balint v. Carson City, Nev., 180 F.3d 1047, 1054 (9th Cir.1999) (citation omitted). A “ ‘scintilla of evidence,’ or evidence that is ‘merely colorable’ or ‘not significantly probative,’ ” does not present a genuine issue of material fact. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir.), cert. denied, 493 U.S. 809, 110 S.Ct. 51, 107 L.Ed.2d 20 (1989) (emphasis in original) (citation omitted).

The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir.1987). The court must view the inferences drawn from the facts “in the light most favorable to the nonmoving party.” Id. (citation omitted).

UNDISPUTED FACTS

1. The AD & D Plan

As a Triad employee, plaintiff was eligible to participate in various employee benefit plans sponsored by her employer, including voluntary employee and dependent AD & D coverage. Ex. A, pp. 1-4. That coverage was provided through a group insurance policy that Triad obtained from Sun Life, which is the AD & D Plan at issue in this case. Under the terms of the AD & D Plan, Sun Life has discretionary authority to interpret the terms of the policy and to make all final determinations regarding claims for benefits. Id. at 28.

Under the AD & D Plan, a Triad employee could obtain AD & D coverage for herself and her dependents, including a spouse. Id. at 5. The AD & D Plan contains the following exclusion, known as the “criminal act” exclusion:

No Accidental Death or Dismemberment payment will be made for a loss which is due to or results from ... committing or attempting to commit an assault, felony or other criminal act.

Id. at 19.

Plaintiff obtained $500,000 in AD & D coverage for her husband, Mr. Lee. Ex. B, p. 111. In addition, plaintiff also obtained basic dependent life insurance coverage in the amount of $25,000 through a group insurance policy that Triad obtained from Sun Life (the “Life Policy”). Id. at 178; Ex. C, pp. 1-3.

II.Death of James Lee

On July 21, 2006, Mr. Lee spent the evening at the Blue Moon, a bar in downtown McMinnville. Ex. B, p. 43. At approximately 10 p.m., he left the Blue Moon and proceeded to walk towards his home. Id. Rather than use surface streets, Mr. Lee chose to traverse a train trestle which crosses over the Cozine Creek ravine to his home on the south side of the ravine. Id. at 34, 45, 68, 73. A paved roadway (Ford Street) runs parallel to the train trestle, allowing pedestrians to pass between the north and south banks of the ravine without walking on the trestle, although the record does not reveal the distance from the trestle to the paved roadway. Id. at 36.

The trestle runs in a north-south direction, is approximately 525 feet long, and stands at least 33 feet above the ravine. Id. at 48-49. Visibility on the trestle is poor due to the presence of trees which creates a “tunnel like appearance.” Id. at 16. At the time of the incident, a “No Trespassing” sign was posted on the south end of the trestle, but was spray painted with graffiti and difficult to read. Id. at 7, 51-52, 66-67.

At some point between 10:00 p.m. and 11:00 p.m. on July 21, 2006, Mr. Lee was struck by a train while on the trestle. Id. at 34, 48, 68. Perhaps due to the poor visibility, the train’s conductor never saw Mr. Lee on the tracks. Id. at 28. The train likely struck Mr. Lee at its normal rate of speed of 10-15 miles per hour. Id. at 43. Mr. Lee’s left foot was severed as a result of the impact. Id. at 42.

Shortly after being hit by the train, Mr. Lee was found by another pedestrian using the trestle, Alex Martinez (“Martinez”). Id. at 34. When asked what had happened, Mr. Lee responded that he had suffered a heart attack. Id. Martinez immediately went to his uncle’s house (which was nearby) and called 911. Id. He then returned to the trestle to stay with Mr. Lee until the ambulance arrived. Id. Mr. Lee was transported to the Willamette Valley Medical Center, but died the following morning as a result of his injuries. Id. at 68, 174.

III. Payment of Dependent Life Insurance Benefits

On September 7, 2006, plaintiff filed a claim for $25,000 in basic dependent life insurance benefits under the Life Policy. Id. at 175-78. The dependent life insurance under the Life Policy contains no criminal act exclusion. Ex. C, pp. 7-10. On October 24, 2006, Sun Life paid plaintiff $25,010.27, the full amount due under the basic Life Policy. Ex. B, pp. 162-64.

IV. Denial of AD