Steven Leipzig v. Aig Life Insurance Company

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 03-3300 & 03-3506
S TEVEN L EIPZIG ,
Plaintiff-Appellant, Cross-Appellee,
v.
AIG L IFE I NSURANCE C OMPANY ,
Defendant-Appellee, Cross-Appellant.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 9154—Milton I. Shadur, Judge.
____________
A RGUED F EBRUARY 23, 2004—D ECIDED M ARCH 25, 2004
____________
Before B AUER , E ASTERBROOK , and K ANNE , Circuit Judges.
E ASTERBROOK , Circuit Judge. The position of “chief
dealer” at the Chicago Mercantile Exchange is a stressful
job. After suffering chest pains that led to an angioplasty,
Steven Leipzig (then 46 years old) concluded that the strain
was too much for his heart and applied for permanent
disability benefits. His physicians told AIG Life Insurance
Company, which administers the long-term disability
portion of the Exchange’s ERISA welfare-benefit plan, that
Leipzig has coronary artery disease, hypertension, and
gout, and that although these conditions have been con-

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2 Nos. 03-3300 & 03-3506
trolled by medication he should not do high-pressure work.
AIG denied his application, and the district court concluded
that this decision is not arbitrary or capricious.
Leipzig leads with a request for a less deferential judicial
role. AIG’s policy contains a grant of discretionary power
that satisfies the clarity requirement articulated in
Herzberger v. Standard Insurance Co., 205 F.3d 327 (7th
Cir. 2000). The policy says: “In making any benefits de-
termination under the Policy, the Company shall have the
discretionary authority both to determine your eligibility for
benefits and to construe the terms of the Policy.” It is hard
to be clearer. This sort of language leads to deferential
judicial review. See Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101, 115 (1989). By granting discretion to AIG,
this plan puts decisions in the hands of medical specialists
(which federal judges and juries assuredly are not) and
curtails the cost of litigation, which makes it possible to
provide workers with better benefits on a given budget.
Still, Leipzig insists that AIG suffers from a conflict of
interest, because like any private entity it strives to keep
costs low, which creates the temptation to deny border-
line claims. That’s true, but the Mercantile Exchange knew
this when it contracted with AIG. Courts have no more
authority to override the agreed terms than they would so
say that, because of AIG’s tendency to serve its own inter-
est, benefits must be set 10% higher to compensate, or the
definition of “disability” be made more capacious so that
employees win more of the close calls. For all we know, this
policy already contains such adjustments to compensate
employees for the risk of self-interested behavior. After all,
the Mercantile Exchange has no reason to deceive its
employees about the quality of fringe benefits on offer; that
would just besmirch its reputation and make it harder to
hire good people in competition with other financial institu-
tions. One might as well say that because a health mainte-
nance organization has an incentive to skimp on care (for it

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Nos. 03-3300 & 03-3506 3
does not collect extra fees for additional medical services),
the judiciary must intervene to force HMOs to offer more or
better care than they have promised by contract. Yet the
Supreme Court held in Pegram v. Herdrich, 530 U.S. 211
(2000), that HMOs’ well-known incentive to shave the costs
of care does not justify “correction” under the banner of
ERISA. The choice between fee-for-service and HMO-style
incentives, neither of them perfect, is left to employers who
must compete for good workers using a combination of
salary and fringe benefits. Just so here.
What is more, as we observed in Mers v. Marriott Interna-
tional Group Accidental Death & Dismemberment Plan, 144
F.3d 1014, 1020 (7th Cir. 1998), most insurers are well
diversified, so that the decision in any one case has no
perceptible effect on the bottom line. There is correspond-
ingly slight reason to suspect that they will bend the rules.
Unless an insurer or plan administrator pays its staff more
for denying claims than for granting them, the people who
actually implement these systems are impartial. See
Perlman v. Swiss Bank Corp., 195 F.3d 975, 980-81 (7th
Cir. 1999). Leipzig does not contend that AIG has jiggered
the incentives of the people who evaluated his claim.
Whatever small scope a federal court may have to “improve”
the welfare-benefit promises employers make under ERISA
does not come into play when the actors who handle the
claim are disinterested in the outcome. Like the district
court, then, we ask only whether AIG’s decision was
arbitrary or capricious.
Like the district court, we conclude that it was neither.
Many persons with serious heart conditions work at stress-
ful jobs for years without ill effects. Think of President
Eisenhower, Vice President Cheney, and Associate Justice
Stevens. AIG concluded that Leipzig is in the same cate-
gory. Leipzig submitted the reports of several physicians
who concluded that he should not hold a high-stress job.
AIG sent the file to Costas Lambrew, an independent

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4 Nos. 03-3300 & 03-3506
cardiovascular specialist who concluded that medical data
show that Leipzig’s blood pressure is under control and his
“coronary artery disease stable and asymptomatic”. Dr.
Lambrew concluded that Leipzig could return to work with
no restrictions. AIG adopted this view, observing that
Leipzig’s own doctors likely had taken their more conserva-
tive position at his request. Most of the time, physicians
accept at face value what patients tell them about their
symptoms; but insurers such as AIG must consider the
possibility that applicants are exaggerating in an effort to
win benefits (or are sincere hypochondriacs not at serious
medical risk). After Leipzig submitted more information to
back up his position, AIG sent him to see Alan Kogan, an-
other independent specialist. Dr. Kogan not only evaluated
Leipzig’s medical records but also administered tests, from
which he concluded that Leipzig is not disabled even from
nerve-racking jobs—though Kogan added that less stress
remains better for Leipzig’s health (or, for that matter,
anyone else’s). So AIG reiterated its denial and stuck to
it after still a third round of review at Leipzig’s behest.
Leipzig contends that the balance of evidence in the medical
records favors his position, but on deferential review that’s
not the right question. The insurer’s decision prevails if it
has rational support in the record—and, given the views of
Drs. Lambrew and Kogan, that standard is met, and to
spare.
AIG has filed a cross appeal. While evaluating Leipzig’s
claim, AIG paid disability benefits under a reservation of
the right to recoup if, in the end, Leipzig is not entitled to
the money. Thus AIG asked the district court to order
Leipzig to return what he had received, if (as the district
court ultimately held, and we have now affirmed) Leipzig
remains able to perform his job at the Mercantile Exchange.
But the district court dismissed the counterclaim for want
of subject-matter jurisdiction, ruling that because a demand
for money is a “legal” rather than an “equitable” claim, it

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Nos. 03-3300 & 03-3506 5
does not fall within ERISA’s grant of jurisdiction for claims
by ERISA fiduciaries, as opposed to claims against them.
See Leipzig v. AIG Life Insurance Co., 257 F. Supp. 2d 1152
(N.D. Ill. 2003), discussing §502(a)(3) of ERISA, 29 U.S.C.
§1132(a)(3), and Great-West Life & Annuity Insurance Co.
v. Knudson, 534 U.S. 204 (2002).
It is not clear to us why it matters whether AIG could
have filed a stand-alone claim under §502(a)(3). Leipzig’s
suit is securely within the subject-matter jurisdiction of the
district court, and a compulsory counterclaim does not
require an independent grant of jurisdiction. See Moore v.
New York Cotton Exchange, 270 U.S. 593, 609 (1926). Even
a permissive counterclaim, if part of the same case or
controversy (a condition met here), may be brought under
the supplemental-jurisdiction statute, 28 U.S.C. §1367(a),
without an independent basis of jurisdiction. Yet AIG
neither characterizes its counterclaim as compulsory nor
relies on §1367(a). It appears to think that supplemental
jurisdiction is limited to claims arising under state law, and
thus that it is of no assistance because a state-law recoup-
ment claim would be preempted by ERISA. This is
a puzzling assumption; §1367(a) does not distinguish be-
tween claims under federal law and those under state law.
Although the general federal-question jurisdiction in 28
U.S.C. §1331 leaves few occasions on which it is necessary
to invoke supplemental jurisdiction to present a federal
claim, when those occasions arise §1367(a) should supply
what is needed. See Jones v. Ford Motor Credit Co., 2004
U.S. App. L EXIS 1819 (2d Cir. Feb. 5, 2004). Still, the fact
remains that AIG has not invoked §1367, and “[j]urisdiction
may not be sustained on a theory that the plaintiff has not
advanced.” Merrell Dow Pharmaceuticals, Inc. v. Thompson,
478 U.S. 804, 810 n.6 (1986). See also The Fair v. Kohler
Die & Specialty Co., 228 U.S. 22, 25 (1913) (“the party who
brings a suit is master to decide what law he will rely
upon”).

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6 Nos. 03-3300 & 03-3506
Section 502(a)(3) creates federal jurisdiction over eq-
uitable claims by pension and welfare plans. Great-West
holds that, as a rule, a plan’s demand to be reimbursed for
benefits wrongly paid out is not such a claim; it is instead
a quest for money damages and thus is legal rather than
equitable. AIG wants money, not the return of the checks it
issued to Leipzig or the contents of a segregated fund, and
Great-West rejected the possibility of applying the “restitu-
tion” label to demands of this kind. The claim therefore is
legal rather than equitable. See Primax Recoveries, Inc. v.
Sevilla, 324 F.3d 544 (7th Cir. 2003). All AIG says in
response—other than to rely on Justice Ginsburg’s dissent
in Great-West, which can’t carry the day in a court of
appeals—is that, because it has a good claim under federal
law, there must be federal jurisdiction. Why so? Until 1875
the federal courts had no federal-question jurisdiction at all.
State courts were, and remain, empowered to entertain
claims arising under federal law. Although today almost
every federal claim can be heard in federal court under
§1331, Great-West shows that there are still lacunae. AIG
can pursue its claim in state court without encountering a
defense of preemption; ERISA preempts state-law theories,
not claims arising under federal law.
A FFIRMED

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Nos. 03-3300 & 03-3506 7
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-25-04

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