Reinstates Zurich’s Death Benefit Denial Due to Possibility was Caused by Pre-Existing Cardiac Condition and Not Car Accident Even if Not “Best Reading” of Policy

The United States Court of Appeals for the First Circuit reversed the District Court’s finding that American Insurance Company’s (“Zurich”) denial of accidental death benefits was arbitrary and capricious.  The First Circuit found Zurich’s denial was sufficiently supported by evidence in the record and remanded the case for entry of summary judgment in Zurich’s favor.

In this case, the First Circuit reviewed whether Zurich’s denial of death benefits was arbitrary and capricious.  Mr. Arruda, the policyholder, was an employee of NSTAR Electric and Gas and was covered under its Basic Accident Policy that was issued by Zurich.  On May 22, 2014, Mr. Arruda had a serious car accident while he was driving to a work event.  He died at the scene shortly after first responders arrived.  Following the accident, Mr. Arruda’s wife, Denise Arruda, timely filed for death benefits.

Under the General Policy Conditions, Zurich has “discretionary authority to determine eligibility for benefits and to construe the terms of the plan.”  The Benefits provision of the Policy states that Zurich will pay benefits if a policyholder “suffers a loss of life as a result of a covered injury.”  A covered injury is defined as “an Injury directly caused by accidental means which is independent of all other causes.”  However, the Policy expressly excludes coverage for a loss that is “caused by, contributed to, or results from … illness or disease.”

After receiving Mrs. Arruda’s claim, Zurich investigated the accident.  The investigation uncovered that Arruda had several medical conditions at the time of his death, including substantial cardiac problems that required him to get an ICD (implantable cardioverter defibrillator) monitor four months before the accident.  Both the autopsy and first responder reports noted cardiac issues as the primary cause of death and the injuries sustained in the accident as secondary or contributory factors of death.  Zurich had two independent medical doctors issue opinions on the claim and they both concluded, with some variation, that the accident was in some way “caused by, or contributed to” by Arruda’s pre-existing medical conditions.  Thus, Zurich denied the claim for death benefits after determining that Mr. Arruda’s death did not qualify as a “covered injury” because the death was not “independent of all other causes” and that his death was expressly excluded because it was “caused by, contributed to, or result[ed] from” an “illness or disease.”

Mrs. Arruda internally appealed Zurich’s denial by submitting additional evidence to Zurich asking them to reconsider the denial.  The evidence included a logbook of the ICD monitor and an independent medical review that opined there was no conclusive evidence that the accident was “caused by, contributed to” a pre-existing medical condition – rather it was only speculative.  In response, Zurich sought a third expert opinion from a forensic pathologist who qualified that his opinion was made with a “reasonable degree of forensic medical certainty.”  After reviewing the “450-page file” he ruled out a number of possible causes of the accident but ultimately determined that “the accident was caused by several possible pre-existing illnesses or diseases, singly or in combination [with others].”  Zurich upheld its denial of benefits.

Mrs. Arruda sued Zurich under 29 U.S.C. §1132 (a)(1)(b) alleging that Zurich violated ERISA by denying her death benefits.  At summary judgment, the District Court granted Mrs. Arruda’s motion and held that the denial of benefits was arbitrary and capricious.  Zurich appealed.

On appeal, the First Circuit reviewed the District Court’s determination de novo.  The First Circuit’s review was to determine whether Zurich’s denial of benefits, as the plan administrator, was “arbitrary and capricious or an abuse of discretion.”  The First Circuit also pointed out that deciding “which party has the burden of proof once an exclusion is invoked … is immaterial” because under the abuse of discretion standard, “the issue is only whether there is substantial evidence in the record to support the administrator’s determination.”  Because the policy expressly gave Zurich discretionary authority to review claims, the First Circuit stated they would defer to its determination if the “decision [was] reasonable and supported by substantial evidence on the record as a whole.”  Thus, Zurich only needed to base its denial on “evidence reasonably sufficient to support [their] conclusion” to be reasonable; it did not need to be the “best reading” of the policy provisions.

Under this standard of review, the First Circuit found there was sufficient evidence to support Zurich’s determination that the accident was “caused by, or contributed to” pre-existing medical conditions.  The First Circuit acknowledged the differing expert opinions offered by each party but ultimately held that the existence of contradictory evidence does not negate or undermine the sufficiency of the evidence upon which Zurich based its denial.  The First Circuit determined that the record as a whole was enough to satisfy the sufficiency of evidence standard that made Zurich’s denial reasonable.  Thus, the First Circuit held that Zurich’s denial of benefits was not arbitrary or capricious or an abuse of discretion.  Accordingly, the decision of the District Court was reversed and remanded for entry of summary judgment in Zurich’s favor.

Justice Lipez dissented with the majority.  According to Justice Lipez, the record did not conclusively prove that Arruda’s pre-existing medical conditions caused the accident.  He asserted that “the record lacks substantial medical evidence that bridges the gap between Mr. Arruda’s pre-existing conditions … and the cause of the fatal car accident,” and thus the denial is neither “reasonable [nor] supported by substantial evidence.”  Justice Lipez’s dissent shares similar sentiments made by Judge Posner in Prather v. Sun Life and Health Insurance Co., 843 F.3d 733 (7^th Cir. 2016), where Judge Posner asserted “Post Hoc is not Propter Hoc.”  Here, Justice Lipez points out that the deferential standard still requires the administrators to base their denials on substantial evidence, which he found the record was lacking.  Arruda v. Zurich Am. Ins. Co., No. 19-1247 (1st Cir. 2020).