Free Response to Motion - District Court of Colorado - Colorado

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IN THE 'UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO TRACY (CARTER) DeFRANCESCO, Plaintiff ,

1
) ) ) ) ) ) ) )

vs .
T N M LIFE INSURANCE COMPANY OF AMERICA, JU

03 CV 02344-RPM

Defendant.

CROSS MOTIONS FOR SUMMARY JUDGMENT TRANSCRIPT OF
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Proceedings held before the HONORABLE RICHARD P. MATSCH, U. S. District Judge for the District of Colorado, beginning at 10:50 a.m. on the 12th day of October 2005, in Courtroom A, United States Courthouse, Denver, Colorado. APPEARANCES For the Plaintiff: David Michael Herrera, Esq. 3600 South College Avenue, #204 Fort Collins, Colorado 80525 Michael Beaver, Esq. Holland & Hart, LLP 8390 East Crescent Parkway #400 Greenwood Village, CO 80111

For the Defendant:

Proceedings recorded by electronic sound recording; transcript .producedby transcription service.
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P - R O C E E D S N G S
(At 10:50 a.m. on October 12, 2005, in the United States District Court at Denver, Colorado, before the HONORABLE RICHARD P. MATSCH, U. S. District Judge, with counsel for the parties present, the following proceedings were had:) THE COURT: Please be seated.

This is Civil 03 M 2344, which has been Clement J. DeFrancesco, Jr. against Unum Life Insurance Company of America. And, the plaintiff died during the course of this

litigation, and is now here by his personal representative, Tracy DeFrancesco. So, we're here on cross-motions for summary judgment dealing with the matter of the claimed offset to the long-term disability benefits here under the plan, which is also the insurance policy in this case by Unum for the disability benefits obtained from Social Security Administration. And, counsel have briefed that. So, we have Mr. Herrera for the plaintiff, and Mr. Beaver for the defendant. Now, that the plaintiff is deceased, we're talking about, what, benefits up to--whatlsat stake in this case, I guess? MR. HERRERA: THE COURT:
ffl 5 0

Your Honor, David Herrera.

Yes. Benefits were set off retroactive to March

t! 1999, and there was a reduction in benefits that started

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MR. HERRERA:

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against the estate, against Mr. DeFrancesco, up to the date of his death, at which time those benefits stopped. The amount of the setoff we believe to be approximately $55,000. THE COURT: Well, is that now a claim against the estate? Is there an estate? Is it a claim against the estate?

MR. HERRERA:

THE COURT: Yes. MR. HERRERA: It's a claim by the estate, we believe,

Your Honor, against Unum-THE COURT: Oh. for overpayment, too. MR. BEAVER: Your Honor, there is. There was an Well, I thought there was a claim back

approximately $43,000 overpayment, and Unum has elected not to pursue that. THE COURT: Okay. So, that's out. So, we're talking

really about the recovery? MR. HERRERA: Yes. THE COURT: By the estate of whatever that number is? MR. HERRERA: Yes, sir. THE COURT: Okay. And, we also, from reviewing the

papers filed here, there appears to be some uncertainty with respect to the policy. This policy changed, the insurance

policy changed here, and there were a couple of differences in the two policies. It appears from what I've seen that

Unum all along has dealt with this under the policy before

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the amendment, or change. Now, there's a change here in whether we apply the discretionary standard, you know, or the de novo review, and I don't know where the defendant stands o n that. The policy

language differs also, though, with respect to the percentage of I think it was 50 per cent, now it's 60 per cent under the changed policy. And, there's a slight change in the language with respect to the offset. So, Mr. Beaver, what's the defendant's position as to the applicability of the original or the amended policy? MR. BEAVER: governing policy. Your Honor, the amended policy would be the

THE COURT:
MR. BEAVER:

But, they never applied it. That's right, but the only provision that

they were applying before the dispute arose was with regard to the same disability language, and that is the same in both policies. So, with respect to that material provision, there

is no difference whatsoever. THE COURT: subject? MR. HERRERA: Well, Your Honor, I don't believe that the Well, Mr. Herrera, what do you say on this

policies are the same in that regard. THE COURT: Yeah. MR. HERRERA:

I was unable to find anywhere in the

October 2001 policy any language that was the same as the

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original policy under which the appeals decision was originally made with regard to settlement. THE COURT: So, are you saying there's no setoff; is

that what you're--youknow, when was this policy changed? MR. HERRERA: Well, we learned of the policy in December, about December 1st of 2004.
It purports to have

been changed by, on its face, October 1, 2001. MR. BEAVER: That is correct, Your Honor, it was October

1, 2001 was the effective date of the amendment. THE COURT: And, it also, though, increased the

benefits, didn't it?

MR. HERRERA:
THE COURT:

Yes, sir.

To 60 per cent? Yes, sir.

MR. HERRERA:

THE COURT :

And, that never was done? We did not know--

MR. HERRERA: THE COURT: today.

No, I 'm just talking about where are we

I'm trying to-Well, today, we believe, it's our view

MR. HERRERA:

that to the extent that there is a process for review, that is the discretionary standard being applied-THE COURT: Right. --under the new policy, we think that if

MR. HERRERA:

the Court finds that that new policy is in fact that and can be applied, then that would be the standard, regrettably, the

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standard that the Court would have to apply.

But, as to the

benefits that had already commenced, we believe that those benefits are based upon the original policy when those benefits were first conferred, and not based upon the subsequent policy. law. THE COURT: Well, but I thought you said the new policy And, I think that's consistent with case

didn't have the same setoff language. MR. HERRERA: The new policy does not have any setoff

language with regard to--it has setoff language, but not the same setoff language-THE COURT: Yes. --in regard to this same disability. In

MR. HERRERA:

other words, this new policy claims that it can set off against all social Security, 'whether it's for the same disability or not. THE COURT: Mr. Beaver? MR. BEAVER: not correct. With all due respect, Your Honor, that's Oh, I see. Well, what do you say to that,

Both policies are structured the same way.

They list the deductible sources of income, and at the end of that section, they have the same disability language. And, in the new policy, that's found at Page 42, in the October 2001 policy, and it reads, "With the exception of retirement payments, Unum will only subtract deductible sources of

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income which are payable as the result of the same Iisability." So, the material language is the same language. THE COURT: Do you have that reference now, Mr. Herrera? MR. HERRERA: Yes, Your Honor. THE COURT: Do you agree with it? MR. HERRERA: Yes, Your Honor. THE COURT: Okay. So--

MR. HERRERA:

I didn't see that, didn't read it, but

ve1ll accept it that the issue was still the same. THE COURT: So, the only difference really between the

2ld or new policy would be the standard of review? MR. HERRERA: Yes, sir. THE COURT: MR. BEAVER: THE COURT: Is that right? That's correct, Your Honor. For our purposes here?

MR. BEAVER: And, I will tell you that I hadn't tipped any difference in benefit percentages, because I wasn't looking at that. But, as a matter of-THE COURT: Well, I think one says 60 per cent and one

says 50 per cent. MR. BEAVER: As a matter of consistency, we would certainly agree that if there's an award of benefits, it's awarded, if it's higher under the new policy, it's higher. THE COURT: Yes. MR. HERRERA: We'll take that.

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THE COURT:

Okay.

Well, I don't know how much

difference it makes here in the standard of review actually, because we're looking at language, and the real question here is whether this is the same disability. You can be seated. I just give you sort of my

impression first, and then hear further from counsel, but the day this is, as I understand the facts, this approval for the disability was March 8 of 2000, with an effective date of February 5--1999, excuse me, and the payments began August the 4th of 1999, because there was, under the terms of the policy, some time before payments began. Then, the insured had a heart attack in October of 2000, with surgery, and the Social Security Administration finally awarded benefits in January of 2002. I've got the

date of January 17 of 2002. And, that was based on an administrative law judge's decision. The insurance company, as I understand it, in their periodic review of continuing disability, did reference the cardiac condition, or heart attack that had occurred after, of course, the initial.determinationhere. That was March,

the heart attack was in October. But, they noted that. What is not clear at all to me is somewhat typically of the Social Security Administration, once they-and these ALJs, they conflate a lot of different conditions together in making a determination of no residual functional

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capacity to perform work of any kind. But, included there, as I read it, was Mr. DeFrancescolsmental condition. The
ALJ made reference to depression and also the--and what is

referred to here as obsessive compulsive disorder, and substance abuse in remission. So, I don't see that Unum ever included those aspects of the disability determination, those impairments, in its decision. Now, you know, you sort of stand back and look at this and say, well, the purpose of this offset provision is to give the insurance company the benefit of what the insured got from other sources, to which he was entitled, and the insurance company shouldn't be stuck twice. But, I think we're looking at the exact language of the policy, and the exact language of the Social Security determination. If you compare those two, I don't see that the depression, obsessive compulsive disorder, and history of--I don't know how the history of substance abuse, I guess in the view of the ALJ, that's sort of a reference back to why was there substance abuse.
20 21 22

It may have been because of

the underlying mental and emotional condition.

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But, I don't see that the insurance company took that mental and emotional condition into its determination. So, that s observations. These are cross-motions, so plaintiff has brought the action, 1'11 hear first from plaintiff's counsel. I just

I

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gave you my impression here.sowe don't have to go through : e history of the case in your presentation. h

I'm aware of

: e history of the, you know, what you've already submitted. h MR. HERRERA: Very well, Your Honor.

For the plaintiff, and Mr. DeFrancesco--the ?laintiff has tried to define his motion for summary judgment 3epending on which standard the Court applies. THE COURT: Yes. At the time tha,twe began the drafting of

MR. HERRERA: the motion-THE COURT:

Well, you know, as I said, I'm not sure it

makes a lot of difference, because what we're looking at is
sn interpretation of a re,cord.

MR. HERRERA:

Yes, sir. And, that is the issue, the

first issue that we had tendered, what record is it. THE COURT: Yes. Is it the record in the entirety that was Is it the

MR. HERRERA:

submitted as part of disclosure in this case?

record that Mr. Kennison purports to have reviewed as part of

s his appeal in Tertino (phonetic) Warren1 denial, or is it
what Tertino Warren said was considered as part of her review? And, for us, whatever standard applies depends on what - THE COURT: Yeah, I see. --looked to. If the Court does a de novo

MR. HERRERA:

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review, which I think is now not likely because of the Welch case and the adoption of the amendment-THE COURT: Right. MR. HERRERA: de novo. --then the Court could consider everything

But, if the Court doesn't do that, then it seems to

me that the question is what record does the Court look at. Counsel for the defendant was clear in his reply brief that the plaintiff is limited in his appeal to only those matters that are brought up on appeal, and that's the record that the plaintiff produced. In this particular case,

the defendant has produced this volume of documentation that was never produced. Now, we understand and-THE COURT: You mean that was never used? never produced, do you mean never used by the-MR. HERRERA: As far as we know, it was not produced to the plaintiff as far as the appeal process, and-THE COURT: Oh. --Mr. Kennisonls record, which is the He When you say

MR. HERRERA:

basis for this appeal, he references two things.

references the February memorandum, February 2001-THE COURT: Yes. --memorandum, and he references the ALJ1s

MR. HERRERA: opinion. THE COURT:

Right.

A .

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12 MR. HERRERA: And, he doesn't reference any other documentation, not withstanding that the defendant has produced these various other documents. It would appear

first of all that if that's the record we're stuck with as plaintiff, that would also be the record the defendants will be stuck with on appeal. If that's not the case, then the

next level of record would be--and why I say that is because the February 2001 memo from--that is, the medical review, was never produced to plaintiff by Tertino Warren, but it was considered by Mr. Kennison. the original request. And, my report said that we had four requests to produce everything that was relied upon in making the determination, and we never got the (inaudible). But, if we do--if Mr. Kennisonls decision is based upon the February 1 memo, we were not provided that, then it seems to me that he is stuck with, that is, Unum, the defendant is stuck with the documents that he actually considered. And, so, what exactly constitutes the record we think is an important distinction for the Court, and kind of drives the rest of the--because if the Court considers everything that was produced in discovery, which we produced it all to the Court in various stages of disclosure, then we would rely on other documents that we didn't have at the time when we filed our appeal, other documents that reveal, for It was never produced as part of

-.

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example, that Unum always considered the cervical degenerative disk disease, that although they became aware because they asked for all medical records, and they analyzed those records, they never changed the basis-THE COURT: Well, you know, you never mentioned in your

filings here this mental condition, and that's something that jumped out at me. MR. HERRERA: Well, that's true, and that's because there was never a claim to Unum for disability based on mental condition. There was never a claim to Unum based upon

a cardiac condition. There was never a claim based on-THE COURT: Well, but it is the reality of these

disabilities that the insurance company does and has the right to review whether the person receiving benefits is entitled to continue benefits. MR. HERRERA: That's correct.

THE COURT: And, that did happen here, and that's where the heart condition came up. MR. HERRERA: THE COURT: Yes.

Okay. They did review all

MR. HERRERA: And, that's right.

medical records, and Mr. DeFrancesco fully cooperated. He authorized disclosure of those medical records. But, the

point is that Unum, in reviewing those records, assumed (inaudible), although never disclosed that they were

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authorizing benefits for the cardiac condition.

In fact,

they didn't consider that as part of this case until Mr. Kennison s review. THE COURT: Well, why aren't you arguing this mental condition? MR. HERRERA: Well, I think that is a disability condition. THE COURT: Right. MR. HERRERA: I think--

THE COURT: And, that was significant to the ALJ, wasn't it? MR. HERRERA:

In fact, all of the list of things were
But, in fact, if we're going to

significant to the ALJ.

focus on the abuse of discretion, the only decision that was made by Mr. Kennison was - THE COURT: Okay. MR. HERRERA: --that it's the same disability as we're

paying benefits for. That's his decision, and he says it's the disability for the cardiac condition. Now, if you go back and look at Tertino Warren's denial of our claim against the setoff, she never mentions it. It's brought up for the first time by Mr. Kennison.

It's almost a footnote that Mr. Kennison says oh, by the way, we have--we also have this condition. the ALJ. That was mentioned by

But, those are the two things that he finds. He

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didn't make any decisions about other disabilities, and it's true that there weren't disabilities found by the ALJ. And,

so, it would be true that those are different disabilities-THE COURT: Yes. MR. HERRERA: --as well. But, his focus, and the basis

of our review, what we think is abuse of the discretion standard, is that for the first time, he raised the cardiac condition in denying the appeal, never been raised prior to that point in time, and, in fact, Ms. Warren's position on it was that the ALJ mentioned the orthopedic condition, and, so, therefore, must be for the same disability. THE COURT: Yes.

MR. HERRERA: And, nowhere-THE COURT: Well, they had denied disability, Social

Security had denied disability earlier based on the orthopedic condition. MR. HERRERA: That's absolutely right. And, in fact--

THE COURT: And, it really wasn't until the heart condition developed that they awarded disability benefits. MR. HERRERA: Absolutely right. timeline as well. It plays out in the

(Inaudible) back date his disability as

February 1999. The Social Security Administration back dated its disability award to March of 1999, a month later. THE COURT: Yes.

MR. HERRERA: And, significantly, the ALJ said most

--

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significant is the cardiac condition. THE COURT: Yes, but the cardiac condition--I don't know

what Mr. DeFrancesco was experiencing before his heart attack. MR. HERRERA: March of 1999. THE COURT: Yes. For the congestive heart failure. That's correct. He was hospitalized in

MR. HERRERA: THE COURT:

Yes. And, then, later, he had the myocardial

MR. HERRERA:

infarction, a quadruple bypass, and that was considered by the ALJ as new evidence. And, so, we believe, and we've

tried to look at this--and, we found one case, and only one case, that deals specifically with this issue, and it is referenced in--it is a case known as Gruber versus Unum, although it's not a Colorado or a Tenth Circuit case, it is a case that involves the' defendant, Unum, and it involves this specific language of same disability. And, an analysis by the court of the Social Security Administration's review of references to the disability for which (inaudible). We think it's that type of analysis that is helpful in this case, because there is another court that has looked at this specific issue. And, although this is not anywhere in the briefs, I had to ask myself if there is a decision

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17 the claimant, who knows, or should have known, of the method of analysis, to interpret an ambiguity in the--should have known. If they don't apply that analysis, if they donltgo

through that process of trying to resolve that ambiguity in favor of the plaintiff, is that not abuse of discretion. There's no indication anywhere in any of the documentation that there was any attempt by Unum to resolve that issue. And, what instead they (inaudible) one memo that simply is a review of existing medical condition, and determined, yeah, (inaudible) prescriptions and limitations, as well. But, nowhere on particularly the February 2001 There's no other

memo, it says condition one, cervical ddd.

references to what the condition is for which benefits are being paid in that particular memo. And, more importantly than that, is October 15, 2002, there was a decision made by Unum, and this is on the record at the defendant's UACL, Page 698, that decision was made to transfer Mr. DeFrancescols status within Unum, and it said transfer to PTD, permanent total disability. year old (inaudible), diagnosed with cervical ddd. is totally disabled, any occupation. He's a 56 Claimant

Claimant does not have

transferrable skills for other occupations. And, that's it. That's the device that transferred Mr. DeFrancesco on October 15, 2002 to permanent total disability for the cervical degenerative disk disease. No other decision was made.

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And, in fact, I referenced it in the brief, the repeated references within Unum as to whether or not they ever considered this to be a cardiac case, and they didn't. It's referenced in the medical review. Everywhere else within Unum, it is treated as a question, what is the disability, what's the primary disability. And, in fact, in response to December 18th to a question in a redacted memo of counsel, it's acknowledged that most of the recent medical is in support of the secondary condition that developed after he went out on disability. In our view, that acknowledges that he was paid disability for the cervical degenerative disk disease, that they never resolved that he was going to take disability for a cardiac condition, or any of the other things that they acknowledged attributed towards his award of Social Security benefits. They never acknowledged any of those other conditions. Instead, we're trying to, it seems to me this was a separate disability. And, to give meaning to the

language in the contract, it seems to me that the insured, that the insured cannot simply adopt by its review process any subsequent condition that may involve a claim. And, that's what they're trying to do in this case. The only document that they, I think, we believe that they can properly refer to is the 2001 memo, and

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~learly, there was no decision made because they didn't have m y medical records. And, it's acknowledged in that nemo that they didn't request medical records. iiecision made that he was disabled.
2001

There was no

And, in an almost ironic

~wist,here is a disability insurance company who is claiming that they were paying benefits for a disability when they 3idn1t have any medical documentation to support it. And, that is, quite honestly, contrary to the normal practice of--but, the point is that in this case, we believe that there is an ambiguity within the policy itself ss to what exactly the same disability means, that there is, st best, a scintilla of evidence on the record because they reviewed medical records in the ordinary course of their business, but never a decision that Mr. DeFrancesco s other disabilities, as found by Social Security Administration, would be a basis for payment. And, as well, the corollary to that is there's never a finding anywhere that Mr. DeFrancesco would no longer be eligible for disability based upon the orthopedic condition. In fact, the record is consistent throughout that

he was always entitled to disability for the orthopedic condition. So, that raises the question of if you have a disabling condition, or multiple disabling conditions, and you have a policy that says that they'll pay for a disability

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that qualifies under the policy, which is not being able to return to the same job, must you declare all disabling conditions to that insurance company, or can you simply say I believe this is--I'mdisabled and qualify for this benefit for this condition. And, is it the right, privilege or opportunity of the insurance company to nullify the same disability language by saying we adopt all future disabilities that you may have in the course of our review of your medical history? THE COURT: any job? Well, didn't this change from same job to

MR. HERRERA:

It did-So, we're talking about the any job

THE COURT: Right. standard now.

MR. HERRERA: Yes, sir. THE COURT: Yes.
MR. HERRERA:

That's right.

There was a determination made October 15,

2002.

That's the memo from Guido Perralta (inaudible).

That's when he makes the decision, asks for permanent total disability, totally disabled to any occupation. That's the

decision that was made that didn't reference anything about any other disability. That's the basis for the award of

total disability payments, and no other. And, so, for us, the question is does inclusion of, and the various laundry list of problems that Mr. DeFrancesco

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has had, the inclusion of the orthopedic condition, the cervical degenerative disk disease, in the ALJ1s report cause all the findings to result in the same disability. And, that's the Gruber case. In that case, there was a question

of depression, and it was referenced by the ALJ, the depression. But, there was a different reason that was found by the ALJ, even though it was referenced, it was contributing certainly. Social Security uses. And, I dare say that Unum is well aware of that. That's why these companies, all companies who provide insurance, insist on filing for Social Security benefits, because they're looking for the setoff.
THE COURT:

But, that's the mechanism that

Right. And, they know that anything that you have But, in this case, the

MR. HERRERA:

is going to be referenced by the ALJ.

ALJ referenced it, acknowledged that it's a severe impairment, and in itself was not sufficient to constitute a disability, and then said most significantly, the cardiac condition. And, we believe that's the break, that's the line that defines that it is that, coupled with the acknowledgment by Unum on October 15th, that it wasn't paying for that disability. And, so, we think that it has to be--that that language in the contract must be given meaning. Otherwise,

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it has no force whatsoever. THE COURT: Okay. What about your claim under

1132(c) (l), where, as I understand it, you agree that the ~nion, not the insurance company, is the plan administrator? MR. HERRERA: Yes, Your Honor, I followed up on ~ounsel's response to that, and I honestly looked for an sxception within the Tenth Circuit, and can't find a basis that would allow the shenanigans-THE COURT: Right. So, we're really here on the

benefits, setoff only? MR. HERRERA: Yes, sir. There is no basis, and I will

acknowledge that, to go against the plan administrator-excuse me--claims administrator. THE COURT: company. Claims administrator, and the insurance

You know, it's the insurance policy that we're

dealing with. Okay, thank you. MR. BEAVER: 1'11 hear from Mr. Beaver.

Thank you, Your Honor.

If I might, there are a number of things that I want to address, and certainly the Court's questions would be foremost among them. But, something has been argued by Mr. Herrera that just has to be addressed here, and that is the notion that somehow, Unum should be forever charged with the initial cause of disability that it determines forever and ever, cast in stone, amen.

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There are two problems with that.

One of them is

contractual, and one of them is really a matter of social

1 policy.

First of all, that ' s not what the contract says.

The plan provision at issue here insures against disability.

I
I

Disability is a defined term.

It's defined as the inability

to perform material duties of an occupation-THE COURT: Any occupation, yes. MR. BEAVER: It's not defined as a condition. And, it's

for that reason, and this gets into the bigger picture, Your

I Honor, that Mr. Herrera, in arguing for qne result for one

I

client, is really ignoring the greater good. The way that Unum normally administers this policy, and any policy, because this language is essentially

1 universal, as the case law reveals and as
dynamic, ever changing sort of process.

the two different

policies here reveal, in administering this, Unum always considers the medical condition of the claimant to be a So, that if a

I

claimant, for instance, is initially disabled because of depression, and while they're out on disability based on depression, gets hit by a truck and becomes unable to work, Unum will consider that disability caused by the second incident by the changing medical condition, and will continue to pay benefits, whether or not depression continues to

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Mr. Herrera's argument was correct, to cover for this very (inaudible) where there's a dispute about same disability, Unum would be justified in abandoning that position and refusing to pay benefits based on changing medical condition. Your Honor, I just think there's a bigger picture here, and Unum is being disparaged, you know, this is some sort of shenanigans that it considers continuing medical conditions. Your Honor, with all due respect, that's not correct, and it disregards Unum's good intent here. Mr.

DeFrancesco was the beneficiary of Unum considering the dynamic physical condition. At Page 302 of the record in February 2002, a Unum medical reviewer finds that there is no particular evidence anymore for orthopedic as the cause of disability, but instead, looks to the cardiac, and that exact language from the reviewer has become the primary condition at present. That's a medical finding, that the cardiac is the main reason for disability at that point. And, at that point, there was no Social Security (inaudible). If Unum had a motive to stop paying benefits, it would have adopted precisely the argument that Mr. Herrera is making, that he was disabled by the initial condition, and you're no longer disabled. Instead, it gave plaintiff the benefit of the more generous interpretation, that it's not insuring a particular condition. It's insuring his inability to work. And, that's

--

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rhat 's at issue here. THE COURT: MR. BEAVER: ;ocial Security-THE COURT: MR. BEAVER: In 2002, January? Yes. I think that the decision was first When was it that they began the offset? It was immediately upon learning of the

:ommunicated to Mr. DeFrancesco in June of 2002 that the ~ffsetwould be made. THE COURT: Security award? MR. BEAVER: THE COURT: MR. BEAVER: They did. Which was January, wasn't it? Right. That's right. And, for whatever But, they did it retroactively to the Social

reason, Unum didn't become aware of it until July. THE COURT: MR. BEAVER: THE COURT: Yes. Or at least didn't consider it. But, we're talking about from January

whatever it was 2002? MR. BEAVER: That's right. Well, it was actually in Prior to that

July of 2002 that they reduced his benefits. time, he was paid benefits without any-THE COURT: retroactively. MR. BEAVER:

Yes, but I thought they applied it

They did, but those amounts had already

been paid, so the only way to recover--

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THE COURT:

Oh, and you waived that?

MR. BEAVER: We ' re not going to pursue it, Your Honor. THE COURT: All right. okay. MR. BEAVER: Right. THE COURT: It's clear now. So, we're beginning in July,

MR. BEAVER: And, then, there were 34 months that that continued until Mr. DeFrancescolsdeath. THE COURT: All right. MR. BEAVER: A couple of other misconceptions I think are important to clear up, and they're minor, but I want to address them.

Mr. Herrera makes much of the fact that Unum paid
benefits based on a February 5, 1999 disability, whereas, the Social Security Administration awarded disability as of March
4, 1999. A simple explanation of that is apparent from the

record. When Mr. DeFrancesco made a claim for benefits with Unum, he gave February 5th as his date of disability. When he made a claim with the Social Security Administration for reasons unbeknownst to anyone here, he stated that that date was March 4, 1999, and that's what the Social Security ALJ1s decision says. THE COURT: Right. MR. BEAVER: So, there's no significance to those

differences. Those differences are just simply based on two

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iifferent things that Mr. DeFrancesco said to two different ~eople. I by no means am implying any kind of ill motive. l gave two different dates, and each of those was accepted e L good faith by the party making the decisions. n With regard to Unum not having found cardiac as a ~asisof disability, the record simply belies that notion. C happened at least twice, twice it happened clear as day in t ?ebruary of 2001 at Page 302 of the record, and in July of 3001 at Page 524 of the record. In both of those instances, I n one instance, it

;he cardiac condition was fully noted.

uas indicated by Unumrs medical reviewer that cardiac was now ;he primary condition, not the orthopedic. And, the other one, the cardiac limitations were neavily relied upon in reaching the conclusion that Mr. 3eFrancesco was entitled to continue benefits. Both of those

notations were made long before the Social Security ALJ1s decision and, therefore, cannot be suspect in any way. With regard to the role of mental illness, Your Honor-THE COURT: Yeah, I didn't see that in any of the

briefing, so, you know, it came to me just by looking at one and the other, and that was missing. MR. BEAVER: Sure. I understand.

We did actually, to

some degree, anticipate that, even though it hasn't really been raised by the plaintiff. In our reply brief, there is a

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chart that indicates each of the conditions mentioned by Social Security, and with the reference in our record to where that same information is in Unum's records.
7 and continues to Page 8 of our reply brief.

It's Page

But, I can

highlight this for you. THE COURT: MR. BEAVER: I see the chart. The really important point here is that in

the two really critical medical reviews by Unum in February and July of 2001, in both instances, the OCD, obsessive compulsive disorder, were mentioned and considered by the medical reviewer, and no specific findings were made concerning those. decision. As the Court noted, the ALJ1s decision sort of inflates a number of medical conditions. say which one caused-THE COURT : MR. BEAVER: Right. But, that's, in essence, Your Honor, It has considered the same It doesn't really But, that's also true of the ALJ1s

exactly what Unum has done.

constellation, the exact same constellation of medical symptoms, and just like the ALJ, Unum has focused on two the seemed to really matter, and that's the orthopedic and the cardiac. The ALJ certainly doesn't indicate that the mental

and nervous conditions were any more significant than that, and, in fact, they very much (inaudible) each other. The

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fact that they're in Unum's record and considered by medical reviewers, and the fact that they're in the ALJ1s decision, but without any particular finding as to those things, are essentially one in the same. But, with regard to the argument Mr. Herrera made uith regard to the Gruber case, Gruber is extremely different and it's important to understand why. In the Gruber case,

Unum was enforcing a provision in its plan that limited benefits for mental nervous conditions to two years, whereas medical related disabilities would be unlimited in duration. And, so, they actually made a finding for that reason that the disability there was a mental nervous disability, and not some other kind. Whereas, unlike here, the initial disability decision makes no determination as to what the cause is. None of the decisions ever communicated to Mr. DeFrancesco, indicated a cause or a medical reason for the disability. There wasn't a reason. And, back to the Gruber

case, Unum made the determination that there was a mental nervous condition, so as to apply the two year limitation. Then, when the Social Security decision came out that relied largely on medical, physical findings, Unum attempted to offset it, and the court said no, you can't do that. Youlve already decided that was a mental nervous condition, so you could apply your two year limitation. And, further, Unum,

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the court said, to the extent that there was medical information available, you ignored it. THE COURT: policy? MR. BEAVER: THE COURT: We do. The two year limit? Do we have that same provision in this

MR. BEAVER: We do. THE COURT: If the disability had been only mental,

depression, obsessive compulsive disorder, the benefits would have ended? MR. BEAVER: It would have been limited to two years if

that had been the sole cause. THE COURT: MR. BEAVER: very different . THE COURT: Well, I know, but most of these policies do Yeah, that's what I asked. Sure. And, of course, here the evidence is

have that limitation on emotional and mental. MR. BEAVER: They do. As a footnote, I note that the Those have gotten

policy provisions are changing right now.

less and less in policies, but it exists here, but was never in play at all because while these mental nervous conditions existed, no one, even the ALJ, ever suggested that they were primary or sole. So, Gruber involved a very different set of facts. One, because Unum had made the express determination that

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Lisability was limited to a condition, that it was later .rying to change its mind about, for different reasons. And, .wo, because Unum was accused of never considering the other tvidence, and here, the record is replete with references to hum considering, not only considering evidence of the !hanging medical condition, but giving Mr. DeFrancesco the )enefit of continuing to pay his benefits instead of just yelying on one previous condition. .napposite to our situation here. Plaintiff's counsel has also argued that with :egard to the initial decision of Unum to offset benefits, :hat Ms. Warren didn't reference the cardiac condition. Mr. (inaudible) is absolutely right. It's also true that Ms.
So, Gruber is completely

Varren did a terrible job in providing the documents that vhoever had asked for during the course of the claim :onsideration. Those things are both true. There's a

reason, but the reason doesn't constitute an excuse.

Now, having said that, it's the purpose of the
?rocedures required by ERISA1 regulations, it ' s the purpose s 2 those things to correct mistakes, and that's exactly what f lappened here. When Unum's Mr. Kennison reviewed the entire

record, the medical issues and not just myopic offset issues, he found (inaudible). And, so, the review procedure corrected the very error which Mr. Herrera was trying to (inaudible). That Is the purpose of ERISA, Your Honor. It I s

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32 o those kinds of mistakes can be caught and give the laimant the most meaningful review of all. Having said that, it's certainly--frankly,Unum eels bad about the fact that Mr. Herrera was not provided fith all the documents that he had asked for in this ituation. No prejudice has resulted. We certainly should

,tillbe able to make all the same arguments here before this lourt, and in any event, he could have re-appealed to Unum, ising the documents. But, Unum still feels bad about that. ,nd, I don't want to go through this argument with that un~cknowledgedthat that was a mistake. Mr. Herrera has also argued that Unum should be ?stopped, if you will, with only one page referenced by Mr. Cennison in that February 2001 medical review. Well, that
!001 medical review is enough right there to resolve the

:ase.

That constitutes substantial evidence that supports

:he reasonableness of Unumls determination. And, thatls the pestion here. But, there is no authority for the notion that a zlaims administrator relied only on specific documents that it references in the determination. Your Honor. The records (inaudible),

There's no real dispute about what it is here.

3nly Mr. Herrerals argument, as valid as it is, that Unum did a bad job of (inaudible) during the process. In short, which I guess is sort of ironic to say

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fter I've spoken for 20 minutes, Unum's decision here, the uestion is was it supported, was it reasonable, supported by ubstantial evidence. And, Your Honor, clearly, Unum, we lould submit, has satisfied its burden. The substantial

vidence indicates that it considered the same medical londitions that the ALJ considered, that they found two of hem to be important, just like the ALJ focused really on two )f them, the cardiac and the orthopedic conditions, that it lade the same finding that because of these limitations .mposed by these conditions, Mr. DeFrancesco had no :ransferrable skills. Really, the consideration of the two bodies almost 7irror one another, what they considered and what they lecided in the final analysis. The record amply supports the

yeasonableness of Unumls determination, and we would, ;herefore, respectfully ask that the Court enter summary judgment in favor of Unum. THE COURT: Well, so, let me, to be--so that I can be

sure of your position, your position is that the amended ?olicy or the change in policy is the applicable--provides the applicable standard for review? MR. BEAVER: Yes.

THE COURT: And, what is the date of that amendment
again?
MR. BEAVER:

October 1st of 2001.

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THE COURT: And, then the--if I were to agree with the iefendant's position on that, and also affirm the setoff iecision in July, and if it is the fact, as I think it is, ;bat the benefits under the amended policy are different from ;he I think it's 60 per cent instead of 50 per cent, you'd go 3ack and apply that to what the claimant--or what the insured received from the date of the amendment? MR. BEAVER: Absolutely, Your Honor. some kind of calculational-THE COURT: MR. BEAVER: Yes. -~a6solutely,it would be corrected. It If there's been

dould be very small, because as a result of these offsets, qr. DeFrancesco was entitled to receive, if anything, only a minimum contract benefit. dollars a month. THE COURT: Well, dollars are dollars. If there's a So, we'd be talking only a few

MR. BEAVER: Absolutely, Your Honor.

calculational error, it should be corrected. THE COURT: calculations. Yes. All right. Well, I don't intend to do But, 1'11

I would just do it by instruction.

hear if Mr. Herrera has any rejoinder. is complete, isn't it? MR. BEAVER: It is.

I think your argument

THE COURT: All right.

Mr. Herrera, do you, again,

while these are cross-motions, you're the plaintiff, so if

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you have some further commentary, I'll hear it. MR. HERRERA: Yes, Your Honor, just with regard to the one matter, and that is the issue of whether or not, as Mr. Beaver says, the February 2001 memo in itself was substantial evidence. In the context of the determination of same disability, part of our approach in this is, quite honestly, wrestling with the idea of at what point does the district court find (inaudible). The policy, does it get to

determine--interpret the policy as was done in (inaudible). The Tenth Circuit, I think, went through an exercise of interpretation to determine whether or not it was reasonable that the determination made by the insurer was reasonable. And, so-THE COURT: Well, I, you know, I don t think that the policy language is a problem for interpretation. It's really

whether the policy language and the same disability, whether the Unum is limited by this record that you've identified as the only applicable record. to decide. MR. HERRERA: That's what--the intent that-THE COURT: Yeah. MR. HERRERA: The same disability is never defined. THE COURT: Yeah. I think that's the thing for me

MR. HERRERA: And, counsel is saying disability is

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defined.

But, same disability is-Yeah,but if it is the case, I haven't read

THE COURT:

that case, but I'll have to, but as it was interpreted by Mr. Beaver, that would be--that's quite a different thing when you're applying that mental and emotional two year limitation to the benefits from the same benefits. MR. HERRERA: Well, I think indeed there was-THE COURT: I mean, that's why I asked the question if

this were only mental, you know, we wouldn't be here. MR. HERRERA: concerned with. Indeed that was part of what the court was

But, there's another part, and it had to do

with the defendant's counterclaim to recover the over payment. And, in that particular instance, what the court

did was make a finding that the--I think it made a finding that the policy had some ambiguity to it, and resolved that ambiguity in favor of the plaintiff. Now, this isn't a Tenth Circuit case, so-THE COURT: 1anguage? MR. HERRERA:
(I)

No, but what is the ambiguity in the policy

What is the same disability.

Do you

IT W IIT

create the same disability by reviewing medical documents that are subsequently provided, and never making a determination that we're paying benefits for these subsequent

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medical conditions.

No determination was ever made by

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anybody, except that he was totally disabled for cervical

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degenerative disk disease. That's the only record that identifies why he's disabled and why he's being paid. is Unum's record. That

The memorandum defines the disability, and

that's the determination. The fact that they-THE COURT: though. Well, let's just run that out for a moment,

Suppose that by some intervention, the orthopedic

limitation would have been removed. MR. HERRERA: THE COURT: Yes.

You know, I don't know what--there are new

things happening in the medical field all the time. But, if that had been removed, then if you follow your argument, there wouldn't be a disability determination here. MR. HERRERA: That's true. But, what happened, I

believe, just like every other insurance company, is they would send a notification, termination of benefits-THE COURT : Right. --and then it would be incumbent upon the

MR. HERRERA:

claimant to say well, wait a minute, I have other disabilities, I have other claims-THE COURT: Right. --that I wish to present. That never

MR. HERRERA: happened.

This was all behind the curtain. But, it would have come up to the same

THE COURT:

thing, wouldn t it? MR. HERRERA: If he chose to submit for that,

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3bsolutely. If he chose instead to rely on Social Security,
2 r

chose instead to go-THE COURT: Well, let's just, you know, if he had--if

;hey had said we're going to stop payments because you don't lave an orthopedic disability anymore. MR. HERRERA: Which is the basis for the award. THE COURT: Yeah. And, so, he, at the same time, has

iis Social Security disability award, and comes back to Unum 2nd says I'm disabled now because of the cardiac condition, surgery, and so forth, they would have to pay him the iifference, wouldn't they? MR. HERRERA: The difference.

THE COURT: Yeah, which is what-MR. HERRERA: And, the reason that's significant is is Jnum's (inaudible). If you play it out further, all the way 3own the line, really what we're saying is that phrase, that sentence means nothing. It means nothing at all. Because

(inaudible) incorporate those by reference into our iieterminations, and, so, anything-THE COURT: Well, but the policy does provide for review

~f disability, doesn't it?
MR. HERRERA: To determine whether or not-THE COURT: He's still disabled, yeah.

MR. HERRERA: For benefits as awarded. THE COURT: Right.

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I certify that the foregoing is a correct transcript from the record of proceedings in the aboveentitled matter.

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November 28, 2005

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