CHALLENGING LONG TERM DISABILITY
AND HEALTH BENEFIT DENIALS
Edward G. Connette
Lesesne & Connette
1001 Elizabeth Avenue, Suite 1-D
Charlotte, N.C. 28204
You have a new client. Sally is a thirty-four year-old mother with two young children. She suffers from advanced ovarian cancer. Her hysterectomy was followed by rounds of conventional chemotherapy. Now, she is enjoying a period of remission. However, given the severity of her cancer, the remission will not last long. Her treating oncologist has told her that she has only a remote chance of surviving for as long as a year, and that conventional chemotherapy will not halt the spread of her cancer. The oncologist has described a treatment protocol administered by a nationally recognized cancer treatment center that offers hope. The procedure uses a combination of high dose chemotherapy supported by peripheral stem cell rescue (HDC/PSCR). The oncologist has referred Sally to the center for screening, and tests there show that the protocol should offer her a good chance for long term survival.
To halt the rapidly spreading cancer, Sally must begin treatment immediately. But when the medical center admissions coordinator applies to Sally's insurance company for pre-admission certification of coverage, the claim is denied. The insurance carrier considers HDC/PSCR treatment for ovarian cancer to be "experimental" and "not medically necessary." Sally cannot afford to pay the projected $100,000 cost of treatment herself, and without insurance coverage she cannot be treated. Without treatment, she will surely die.
- - Your worst nightmare.
On the rough wet grass of the back yard my father and mother have spread quilts. We all lie there, and I too am lying there. First we were sitting up, then one of us lay down, and then we all lay down, on our stomachs, or on our sides, or on our backs, and they have kept on talking. They are not talking much, and the talk is quiet, of nothing in particular, of nothing at all in particular, of nothing at all. The stars are wide and alive, they seem each like a smile of great sweetness, and they seem very near. All my people are larger bodies than mine, quiet, with voices gentle and meaningless like the voices of sleeping birds. One is my mother who is good to me. One is my father who is good to me. By some chance, here they are, all on this earth; and who shall ever tell the sorrow of being on this earth, lying, on quilts, on the grass, in a summer evening, among the sounds of night. May God bless my people, my mother, my good father, oh, remember them kindly in their time of trouble; and in the hour of their taking away.
- - James Agee, A Death in the Family
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Q:Do you understand that [Sally] will almost surely die if she does not receive this treatment?
- - Deposition of Insurance Company Medical Director.
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This is not television. This story is a daily rerun we all have seen as insurance carriers deny coverage for HDC/PSCR treatment for women with breast cancer and ovarian cancer. It happens to men and women suffering from multiple myeloma. It happens to children suffering from brain tumors. Workers needing long term disability benefits are hit. People once smug in the security of having insurance for protection are jolted when they learn that coverage is being denied. It always happens at the moment when they most need it and are least able to fight to get it. Weakened by disease, sickened with fear and anxiety, they now must find a lawyer to join their treatment team.
SCOPE OF PRESENTATION
This paper will discuss procedures for challenging Long Term Disability ("LTD") and health benefits coverage denials under ERISA. The basic ERISA principles are the same for both types of benefits. For various reasons, however, the majority of reported decisions arise from cases challenging health benefits denials for procedures or drugs deemed "experimental," "investigative" or "not medically necessary." While the types of medical procedures or drugs considered experimental or investigative is boundless, the most commonly litigated issue today is coverage for various HDC/PSCR treatment protocols for breast, ovarian and brain cancer patients. This cancer litigation offers a good window on future benefits litigation and is shaping many of the principles and strategies that will be used in other types of cases.
This paper is not a primer on ERISA. Rather, it will focus upon the practical steps to take in challenging claims denials within the context of ERISA.
I. UNDERSTANDING ERISA
In the beginning, there was SPAM. And then there was ERISA:
A hyperbolic wag is reputed to have said that E.R.I.S.A. stands for "Everything Ridiculous Imagined Since Adam." This court does not take so dim a view of the Employee Retirement Income Security Act of 1974. Instead, this court is willing to believe that ERISA has lurking somewhere in it a redeeming feature. However, this is not the case in which to find it. Instead, this case turns on mundane, routinely accepted principles offering little grist for the ERISA windmill.
Acker, J., in Florence Nightingale Nursing Service, Inc. v. Blue Cross/Blue Shield of Alabama, 832 F.Supp. 1456,1457 (N.D.Ala. 1993).
The Employee Retirement Income Security Act of 1974 ( "ERISA")5 is the federal law that governs the administration of employee benefit plans and the rights of the beneficiaries under the plan. ERISA applies to all employee benefits plans "established or maintained" by an "employer" engaged in commerce or by an "employee organization" representing employees engaged in commerce or in any industry or activity affecting commerce.
Pension benefits are known under the statute as "pension benefit plans." Health and disability benefits are known as "welfare benefit plans." An employee "welfare benefit plan" is defined under ERISA as:
[A]ny plan, fund, or program which [is] . . .established or maintained by an employer or by an employee organization . . . for the purpose of providing for its participants or beneficiaries . .. medical, surgical or hospital care or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs or day care centers, scholarship funds or prepaid legal services . . . .[emphasis added]6
A welfare plan that meets the following four criteria will be governed by ERISA:
1. It is a "plan, fund or program";
2. "Established or maintained" by an employer (or an employee organization);
3. For the purpose of providing medical, surgical, hospital care, sickness, accident, disability, or other enumerated benefits;
4. To participants or beneficiaries.
Almost all health benefits plans offered through private employers are governed by ERISA, 29 U.S.C. §1001, et seq. A claimant challenging the denial of benefits must bring the claim under ERISA, and all other state law remedies are preempted. The procedural steps and issues involved in an ERISA claim are summarized below.
1. Exhaustion of Internal Plan Remedies.
Before filing suit, the claimant must first exhaust any internal review or administrative appeal remedies offered by the plan. However, if treatment is needed before the plan remedies can be exhausted, a claimant may file suit to seek emergency relief pending exhaustion of plan remedies. Exhaustion will be discussed in more detail later in this paper.
2. Court Jurisdiction.
Once the internal plan remedies have been exhausted, an ERISA claim can be filed either in state court or federal court. Because time is of the essence in obtaining treatment, many claimants file their complaints in state court. Their perceived advantage is that state court judges are more accessible for obtaining needed temporary restraining orders and preliminary injunction hearings. However, plan administrators tend to remove these cases to federal court, citing federal question jurisdiction as grounds for removal.
3. Standard of Review.
The proper standard of review in ERISA benefit denial cases was discussed by the Supreme Court in Firestone Tire & Rubber Co. v. Bruch, 103 L. Ed 2d 80 (1989). The Court held that a challenge to a denial of benefits is to be given de novo review unless the benefit plan gives the plan administrator discretion in determining eligibility for benefits or in interpreting terms of the plan. Bruch at 95. The Supreme Court went on to say that where the benefit plan gave the administrator discretion but the administrator was operating under a conflict of interest, that conflict would be considered as a factor in determining whether there was an abuse of discretion. Id.
Since Bruch, a large number of ERISA cases have examined whether the administrator enjoyed discretion under the terms of the plan. Because the applicable standard of review often determines the outcome of the case, claimants always argue that the plan language allows the administrator no discretion, or that there is an inherent conflict of interest, so that a more relaxed standard applies. Plan administrators naturally seek an arbitrary and capricious standard of review.
II CHALLENGING THE BENEFITS DENIAL
It is important to begin at the beginning. Invariably, the first question that every judge asks in insurance denial cases is, "What does the policy7 say?"
Your first step should be to obtain from your client or the employer copies of the benefits denial notice and the summary plan description ("SPD")8. Your client usually will have these documents ready to bring to your initial meeting. Unless it is clear that the plan administrator is denying coverage based upon specific language found in the SPD, you should obtain a full copy of the plan and any amendments.
A. Read the Benefits Denial Notice.
Even before reading the plan, it will be more useful to read the letter from the plan administrator citing the reasons for denying coverage. Under ERISA, the plan administrator is required to notify the beneficiary of the specific grounds for coverage denial, the manner in which the denial can be reviewed, and additional information that would be useful in reconsidering the decision. These initial denial notice letters often are defective and may ultimately serve as a basis for judicial reversal of the benefits denial. This issue will be discussed in more detail later. The coverage denial letter — assuming that your client has received one — will refer you to the specific plan language used to deny coverage.
B. Study the Policy Language.
Under ERISA, the insurance policy is referred to as the "plan." The plan tends to be a voluminous legal document that rarely sees the light of day. Typically, beneficiaries receive a benefits booklet known as the "SPD." Most beneficiaries and their employers see only the SPD. In the event of a discrepancy between the plan and the SPD, the plan language should control. However, where the SPD appears to give benefits not allowed by the plan, beneficiaries have an excellent estoppel argument that the SPD language controls.
C. Analyze the Plan.
In reviewing the policy language, the following questions should be considered:
1. Is the policy language worded clearly and consistently?
2. Could the claimant reasonably know that the disability claim would be denied, or that the medical procedure would be excluded from coverage based upon the wording of the policy?
3. If the plan language has been amended, was the claimant given reasonable notice of the change and its impact on coverage of the procedure involved?
4. Does the plan language give the carrier or plan administrator reasonable discretion to interpret the policy language?
5. Has the claimant been given adequate notice of internal review and plan appeal remedies?
6. Has the plan administrator acted responsibly in the review and plan appeal steps?
Ultimately, the wording of the policy and the manner in which the carrier or plan administrator processes the claim under the policy provisions are the most critical factors in determining the outcome of any contested claim. How these factors are reviewed by the court, however, varies dramatically depending upon the type of policy involved. Therefore, it is important to know the kind of plan the claimant has.
D. Make Sure the Claim is Covered by ERISA.
ERISA preemption clearly favors defendant insurance companies and plan administrators. Claimants must fight against a heightened standard of review, with a severely curtailed opportunity to present evidence and cross examine adverse witnesses. Even then, prevailing claimants can only recover payment of benefits to the extent allowed by the plan, and perhaps attorney fees. There is no hope of additional damages. Conversely, there is little threat to defendants in denying coverage. At worst, they will be ordered to pay the benefits that they should have paid in the first place. Although most plans are covered by ERISA, you should always check to make certain.
1. The Scope of ERISA Preemption.
In Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987), the Supreme Court held that ERISA's civil enforcement provisions displaced state law to the extent that Congress intended all claims relating to employee benefit plans to be exclusively federal in nature. The Court noted that under § 1144(a) ERISA provisions were "intended to displace all state laws that fall within its sphere, even including state laws that are consistent with ERISA's substantive requirements."
Similarly, in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. ___, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), the Court held that § 1144(a) preempted state common law tort and contract actions for improper processing of a claim under an ERISA plan.
In Madonia v. Blue Cross and Blue Shield of Virginia, 11 F.3d 444 (4th Cir. 1993), the Fourth Circuit held that an insured plan member's state law claims for failure to pay benefits were preempted by ERISA. The decision is instructive because it highlights the broad scope of ERISA. The employer and plan sponsor in Madonia was Martinsville Neurological Associates, Inc., a Virginia corporation. Its sole shareholder, director and president was Dr. Eugene Madonia, and it was his wife who was claiming denial of benefits under a group health insurance policy issued in the name of Dr. Madonia. The court held that this group insurance policy constituted an employee benefit plan within the meaning of ERISA, and that Dr. Madonia's wife was a participant or beneficiary under the plan. Thus, it was preempted by ERISA.
2. Six Possible Exceptions to Preemption.
There are six possible exceptions to ERISA coverage and preemption.
a. Government employees.
Government plans plans are excluded from ERISA coverage. Thus, for example, the North Carolina teachers’ and state employees retirement and health insurance plans are not covered by the statute. Federal employees similarly are excluded.9
b. Church employees.
Like government plans, church benefit plans are excluded from coverage.
c. Sole proprietors and their families.
Self-employed individuals are not "employees" and their benefits are not ERISA plans if only the individual and family members are covered.10
d. Partners in a partnership, if no employees are included in plan.
A partnership with a plan that only covers the partners (but does not cover employees of the partnership) is not covered by ERISA.11
e. The "Pass-Through."
There are circumstances where a group insurance arrangement does not constitute a welfare benefit plan under ERISA. Under DOL regulations found at 29 U.S.C. § 2510.3-1(j), a group plan is not governed by ERISA where:
a.No contributions are made by the employer or an employee organization [such as a union];
b.Participation in the plan is completely voluntary;
c.The employer does no more than permit the insurer to publicize a program, collect premiums through payroll deduction and enroll employees; and
d.The employer receives no consideration for installing the program other than reasonable administrative costs in connection with payroll deductions.
Note that the regulation refers to the employer "not endorsing the program." Arguably, if the employer promotes the availability of health insurance as a benefit of employment, then it may be treated as an ERISA plan, even though all premiums are paid by the employee.
f. State Regulation of Insurance Coverage.
Under 29 U.S.C. § 1144(b)(2)(A), "the law of any state which regulates insurance" is excluded from preemption by ERISA. Thus, self-funded plans are exempt from state insurance regulation. FMC v. Holliday, 498 U.S. 52 (1990). Many plans are funded, at least in part, by contributions from the employee-beneficiaries through payroll deductions. In those cases, state statutes and regulations governing insurance coverage will apply. This often gives additional protection for claimants.
E. The Administrative Appeal.
The exceptions to ERISA preemption are quite narrow, and in most cases the claim will be governed by ERISA.
1. Administrative Remedies Generally.
All ERISA plans contain provisions that allow for internal review of initial claims denials. Thus, when the plan administrator denies coverage, there are prescribed steps which the claimant must follow to seek review of the decision. The claimant must be adequately informed of the denial, the basis for the denial, and the review procedure. In particular, ERISA requires that notice of denial of benefits be sent to the plan participant:
In accordance with regulations of the Secretary, every employee benefit plan shall--
(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.
ERISA §503, 29 U.S.C. §1133.
The Secretary's regulations, found at 29 CFR §2560.503-1, set out the minimum requirements for employee benefit plan procedures. Subsection (b), "Obligation to Establish a Reasonable Claims Procedure," which provides in relevant part:
Every employee benefit plan shall establish and maintain reasonable claims procedures.
(1) A claims procedure will be deemed reasonable only if it:
(I) complies with the provisions of paragraphs (d) through (h) of this section...
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(iii) Does not contain any provision and is not administered in a way, which unduly inhibits or hampers the initiation or processing of plan claims...
29 C.F.R. 2560.503-1(b).
The regulations specify that notice must be given to beneficiaries, as follows:
(f) Content of Notice. A plan administrator ... insurance company, insurance service, or other similar organization shall provide to every claimant who is denied a claim for benefits written notice setting forth in a manner calculated to be understood by the claimant:
(1) The specific reason or reasons for the denial;
(2) Specific reference to the pertinent plan provisions on which the denial is based;
(3) A description of any additional materials or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.
29 C.F.R. § 2560.503-1(f) (emphasis added).
In White v. Jacobs Engineering Group, 896 F. 2d 344 (9th Cir. 1989), the court reviewed the ERISA statutory and regulatory notice requirements and ruled that a summary notice was inadequate. In that case, the court held that because the notice was inadequate, the plaintiff's claim was not barred by a sixty-day time limitation for administratively appealing a benefits denial. Among the many cases discussing ERISA benefits notice requirements, White is particularly instructive because of its discussion of other circuit and district court rulings on the issue.
The notices sent by many plan administrators are fatally defective, and there is a trend toward closer scrutiny of the adequacy of the notice afforded.
2. Exhaustion of Administrative Remedies.
The internal plan remedies should not be ignored. While the internal review steps would appear to be optional under the ERISA statute and regulations, courts have held them to be mandatory, except in limited cases. Thus, the claimant should be careful to follow administrative remedies before filing suit. In most cases, the insurance carrier who denied the benefits claim will also be the agency administering the appeals process and making the final appeal decisions. ERISA expects the administrator to act as a fiduciary, but few administrators succeed in wearing so many different hats without breaching their fiduciary responsibilities.
ERISA allows an employer to administer its own plan, but 29 U.S.C. § 1104, Fiduciary Duties, requires a fiduciary to meet a "prudent person" standard in discharging duties solely in the exclusive interest of the plan participants and beneficiaries. The statute says:
[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and --
(A) for the exclusive purpose of:
(I) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;
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(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.
29 U.S.C. §1104. The prudent person standard applies in reviewing the fiduciary's conduct involving the plan administration and management. Kowalewski v. Detweiler, 770 F.Supp. 290 (D.Md. 1990).
3. The Administrative Record.
The most serious error claimants’ attorneys make is their failure to appreciate the importance of the administrative record. Courts have held that, in many cases, the only evidence that a court can review is the "administrative record" that was before the plan administrator at the time the decision to deny benefits was made. Many attorneys are surprised to learn that they cannot present evidence or cross-examine adverse witnesses once they file suit. Therefore, it is important to load the record with any information that might be helpful to the claimant before suit is filed.
In Bernstein v. CapitalCare, Inc., 70 F.2d 783 (4th Cir. 1995), the court vacated a denial of hospitalization benefits because, among other reasons, the administrative record at the time of the benefit denial contained insufficient evidence to allow the district court to adequately review the claim. The court therefore remanded the case to the trial court, with instructions to remand the case to the plan administrator for reconsideration upon a complete evidentiary record.
4. Pursuing the Administrative Appeal.
The initial benefits denial notice is often defective. In Conley v. Pitney Bowes, Inc., 34 F.3d 734 (8th Cir. 1994), the court held that failure to give proper notice excuses the requirement to exhaust administrative remedies. Despite this ruling and similar rulings from other courts, the better strategy usually will be to try, in good faith, to pursue the appeal while preserving the procedural defect for later judicial review.
Generally, the claimant’s strategy in an administrative appeal will be to:
1. Load the record with all material supporting the claimant.
2. Give the Plan Administrator every opportunity to do the right thing.
3. Preserve evidence of arbitrary or capricious conduct and procedural errors by the Plan Administrator.
F. Loading the Record.
Outlined below are steps to be taken in pursuing the appeal and developing the record:
1. Obtain copies of all relevant documents from the Plan Administrator.
Under § 502(c)(1) of ERISA, 29 U.S.C. § 1132, the administrator must furnish copies of plan documents and relevant claims information requested by the participant within thirty (30) days of the request. In Daughtrey v. Honeywell, Inc., 3 F.3d 488 (11th Cir. 1993) the court concluded that the plaintiff had no valid claim for benefits, but nevertheless was entitled to penalties because of the defendant’s failure to provide her with statement of accrued benefits as she requested. DOL regulations at 29 C.F.R. § 2560.503-1(g)(ii) hold production of these records to be an essential part of a fair claims review process.
2. Communicate with the treating physician.
The treating physician’s opinion is often the key to coverage. The treating physician often will be your strongest ally. Many courts put great stock in the treating physician’s definition of medical necessity or give great deference to the treating physician’s opinion. See ... Marker v. Union Fidelity Life Ins. Co., 125 F.R.D. 121 (M.D.N.C. 1989), aff’d per curium, 907 F.2d 1138.
In Bedrick, supra, an insurance company staff doctor had second-guessed the opinions of two treating physicians. The Fourth Circuit gave no weight to the opinion of this non-examining consulting physician’s conclusion that a claimant would not benefit from treatment recommended by his treating physicians. Commenting upon the insurance company’s physician, the court said, "To put it most charitably, we think it abundantly clear that Dr. Pollack at least "unconsciously" put the financial interest of Travelers above her fiduciary duty to [the beneficiary]." Slip op. at 9. In its criticism of this type of biased medical review, the court said:
A fiduciary with a conflict of interest must act as if he is "free" of such a conflict. Doe, 3 F.3d at 87. "Free" is an absolute. There is no balancing of interests; ERISA commands undivided loyalty to the plan participants. Travelers did not evaluate Ethan's physical and occupational therapy claims in a manner consistent with this duty. We reverse the denial of benefits.
Id. The court in Florence Nightingale, supra, similarly criticized a plan administrator’s decision, which was based upon the opinion of an insurance company’s staff medical doctor.
Judicial review of ERISA benefits claims closely parallels judicial review of an appeal from the denial of Social Security disability benefits. In both, the court is supposed to limit review to an administrative record, giving deference to the decision maker in the administrative proceeding. In the early stages of a Social Security claim, DDS medical doctors generally review the records of treating physicians and offer opinions regarding disability. In Social Security claims, the court is guided by the well-established "treating physician rule," whereby the opinions of treating physicians are entitled to great deference, particularly when they conflict with the opinions of consulting doctors who have not examined or treated the claimant. The opinions of treating physicians must "be given great weight and may be disregarded only if there is persuasive contradictory evidence." Coffman v. Bowen, 829 F.2d 514, 517 (4th Cir. 1987).
For the same practical reasons found in social security cases, the treating physician rule can be advanced in appropriate ERISA cases. There has been no universal application of the treating physician rule in all ERISA cases. Many claims under ERISA involve denial of medical insurance benefits, where the treating physician has a financial interest in the outcome. In those types of ERISA cases, the opinions of treating physicians may not be entitled to as much deference. See, e.g., Salley v. E.I. DuPont de Nemours & Co., 966 F.2d 1011, 1016 (5th Cir. 1992) (declining to follow the treating physician rule where the doctor "would stand to profit greatly" if medical insurance benefits were granted). In other cases, however, deference should be given to the opinions of the treating physician.
3. Communicate with the treating institution.
Your client often will have been referred by the primary treating physician to a regional cancer treatment center or teaching hospital. The physicians at these centers tend to be nationally recognized experts in their fields. Like the treating physicians, they will be your allies. They usually have admissions coordinators who are accustomed to dealing with insurance carriers. It can help tremendously to develop a close, working relationship with these admissions personnel.
4. Survey the medical literature.
The medical center furnishing treatment, or perhaps the treating physicians, usually will be able to refer you to medical literature and unpublished studies supporting the efficacy of the treatment at issue. It also helps to conduct a medical literature search. Copies of any relevant studies or literature should be submitted as part of the record.
5. Find Out How Many Times the Procedure has been Done in the past.
6. Find out what other carriers offer coverage for the procedure.
Insurers do not make coverage decisions uniformly. One widely cited study reviewed 533 breast cancer patients in clinical trials who requested coverage for ABMT from 1989 through 1992 and found that 77 percent of them received coverage approval following their initial request.12 It often helps to furnish a list of other insurance carriers that have allowed coverage for the procedure. The medical center furnishing treatment to your client often can help with this.
7. Find out if the procedure is done at other notable institutions.
8. "Humanize" the record.
Remember that your client may never have a day in court if the case is decided solely upon the record. Submit photographs of your client and family for the administrative record. Include statements from friends, neighbors, pastors and children.
G. Judicial Review.
1. Jurisdiction and Venue.
Once administrative remedies have been exhausted, then the next step is to seek judicial review. Although an ERISA claim can be filed in either state or federal court, most defendants will remove state court actions to federal court. The venue provisions are rather lenient and give the claimant the choice of filing where he or she lives, where the plan administrator or employer is located, or where the claim arose.
2. Standard and Scope of Review.
Two closely related issues are the standard and scope of review. Defendants can be expected to argue, whenever possible, that they are entitled to a deferential, arbitrary and capricious standard of review. They also will argue that the court must limit its review of the claim to the administrative record that was before the plan administrator at the time the final decision denying benefits was made. This issue may arise early in the case, when the defendant moves for summary judgment based on the administrative record and argues that there should be no discovery since only the administrative record can be considered. Thus, it is important to have an understanding of these issues.
Firestone Tire & Rubber Co. v. Bruch, 49 U.S. 191 (1989) sets forth the proper standard of review in ERISA benefits denial cases. The Court reasoned that, because the statute imposes a high fiduciary duty upon plan administrators, trust principles require a more deferential standard for review of their decisions under some circumstances:
We hold that a denial of benefits challenged ... is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary authority to determine eligibility for benefits or to construe the terms of the plan.
Id. at 115. Since Bruch, almost every reported ERISA decision begins with an examination of whether the administrator enjoyed discretion under the terms of the plan, thereby triggering a higher "abuse of discretion" standard. The leading Fourth Circuit decision is De Nobel v. Vitro Corp., 885 F.2d 1180 (4th Cir. 1989). This opinion notes the "total abandonment" of the old arbitrary and capricious formulation and holds that now the "threshold issue" for reviewing courts is whether a particular plan vests in the administrator discretion to settle disputed eligibility questions or to construe the terms of the Plan itself. If the Plan's fiduciaries are entitled to exercise discretion of that sort, reviewing courts may disturb the challenged denial only upon a showing of procedural or substantive abuse; otherwise, the question must be reviewed de novo.
Because the applicable standard of review often determines the outcome of the case, plan administrators naturally seek an arbitrary and capricious standard of review, and claimants argue for a de novo standard. Plan administrators have the upper hand in the standard of review battle, because they get to draft the plan language in the first place.
However, the inquiry does not end with language conferring discretion upon the plan administrator. The Supreme Court went on to say in Bruch that where the benefit plan gives the administrator discretion but the administrator is operating under a conflict of interest, that conflict must be considered as a factor in determining whether there was an abuse of discretion:
Of course, if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a "factor in determining whether there is an abuse of discretion."
489 U.S. at 115, (citing Restatement Second of Trusts 187, (1959)).
Where the plan administrator is operating under a conflict, courts often describe the standard of review as a "modified abuse of discretion" standard, rather than de novo. The difference may be one of semantics only, because the effect is the same: the standard of review is one for a fiduciary with a conflict, where its decision is suspect and therefore entitled to little, if any, deference.
The leading ERISA decision on the standard of review for fiduciaries with conflicts is Brown v. Blue Cross and Blue Shield of Alabama, Inc., 898 F.2d 1556 (11th Cir. 1990), cert. denied, 111 S. Ct. 7121 (1991). Brown reversed a summary judgment affirming the Plan's denial of medical benefits by a decision-maker which both made coverage decisions and paid out the benefits. The court found that although the district court had properly determined that the "abuse of discretion" standard applied to the case, it had failed to properly consider the administrator's "inherent conflict of interest" in applying that standard of review:
The inherent conflict between the fiduciary role and the profit-making objective of the [decision-maker] makes a highly deferential standard of review inappropriate.
Id. at 1562. In its lengthy discussion of the abuse of discretion standard in conflict situations, the court further found that:
The degree of deference exercised in review of a fiduciary’s decision ranges from slight to great, depending upon the dynamics of the decision making process.... In Posnerian terms, "the arbitrary and capricious standard may be a range, not a point." The disinterested, impartial decision maker deserves the greatest deference.... Correspondingly, "[w]hen the members of a tribunal -- for example, the trustees of a pension fund -- have a serious conflict of interest, the proper deference to give may be slight or even zero; the decision if wrong may be unreasonable."
Id. at 1564 (citations omitted). In its decision, the Brown court expressly rejected the notion that courts must blindly defer to the Plan Administrator’s decision, even if the court believes that decision was wrong. That, said Brown, is not the law if the fiduciary has a conflict of interest:
[A] wrong but apparently reasonable interpretation is arbitrary and capricious if it advances the conflicting interest of the fiduciary at the expense of the affected beneficiary or beneficiaries unless the fiduciary justifies the interpretation on the ground of its benefit to the class of all participants and beneficiaries.
Id. at 1566-67. The court concluded:
We emphasize the central theme of our exposition: well-established common law principles of trusts teach that a fiduciary operating under a conflict of interest may be entitled to review by the arbitrary and capricious standard for its discretionary decisions as provided in the ERISA plan documents, but the degree of deference actually exercised in application of the standard will be significantly diminished.
Id. at 1568 (emphasis added). The principle expressed in Brown has been given effect by other courts. For example, in Doe v. Group Hospitalization and Medical Services, 3 F.3d 80 (4th Cir. 1993), the court said:
We hold that when a fiduciary exercises discretion in interpreting a disputed term of the contract where one interpretation will further the financial interests of the fiduciary, we will not act as deferentially as would otherwise be appropriate. Rather, we will review the merits of the interpretation to determine whether it is consistent with an exercise of discretion by a fiduciary acting free of the interests that conflict with those of the beneficiaries. In short, the fiduciary decision will be entitled to some deference, but this deference will be lessened to the degree necessary to neutralize any untoward influence resulting from the conflict.
3 F.3d at 87. In Wilson v. Group Hospitalization and Medical Services Inc., No. 92-0859 (D.D.C. May 4, 1992), the trial judge found:
The insurance carrier which both issues a policy and administers it occupies dual roles that create an inherent conflict of interest. In its fiduciary role, the insurance company interprets the plan, determining what expenses are covered. This fiduciary, however, is the same company that will ultimately pay for those expenses from its own coffers. Thus, the insurance company's "fiduciary role lies in perpetual conflict with its profit-making role as a business." The inherent conflict between the fiduciary responsibilities of the insurance carrier and its own financial interests renders the insurance carrier’s interpretation of the Plan suspect and requires that the Court scrutinize the carrier's interpretation with great care to determine whether the carrier acted free of self-interest.
Slip op. at 5. See also Bucci v. Blue Cross-Blue Shield of Connecticut, 764 F. Supp. 728, 733 (D. Conn. 1991) (denial of claim "avoids a direct expense to defendant, not merely allocation of committed funds"); Kulakowski v. Rochester Hospital Service Corp., 779 F. Supp. 710, 716 (W.D.N.Y. 1991) (denial of claim calls for "searching and careful inquiry" where fiduciary has conflict).
ERISA plaintiffs can recover no damages beyond payment of benefits owed under the policy. If the policy allows for payment of sixty percent of the reasonable and necessary cost of chemotherapy, up to a lifetime cap of $5,000, then that will be the limit on your client’s recovery. There are no damages for pain and suffering, emotional distress, or bad faith.
The typical ERISA benefits claim is framed around declaratory or injunctive relief, seeking payment of benefits owed. If your client has already paid for the procedure, then she or he can recover a judgment for denied benefits. 29 U.S.C. Section 1132(a)(1)(B).
Attorney fees can be awarded under 29 U.S.C. § 1132(g), in the court’s discretion.
On judicial review, a plan administrator often will ask for remand of a defective claim denial for further consideration by the plan administrator. While this is sometimes allowed, courts generally are reluctant to return a claim denial to a defendant who already has failed to review a claim according to fiduciary standards. For example, in Halpin v. W.W. Grainger Co., 962 F.2d 685 (7th Cir. 1992), the court held that the administrator’s procedural errors in handling a benefits claim entitled the claimant to benefits without a remand. In Berry v. Ciba-Geigy Corp., 761 F.2d 1003, 1007 n. 3, (4th Cir. 1985), the court noted that in cases where the fiduciary committed clear error or acted in bad faith, "a reversal, rather than a remand, would be within the discretion of the district court."
In many medical fields, treatment breakthroughs are advancing at a dramatic pace. By the time treatment protocols in some fields have been sufficiently studied to make their way into traditional, peer-reviewed literature, the procedures are obsolete. Similarly, judicial interpretations of ERISA issues are advancing so dramatically that, by the time you have read this far, something I have said in this paper probably has been overruled.13 For our clients, favorable benefits determinations can be life savers. For us as attorneys, intelligently representing our clients in ERISA litigation offers a tremendous public service.