Doe v. Travelers Ins. Co.

• Citation: 167 F.3d 53
• Decision Date: 27 January 1999
• Docket Number: No. 98-1286,98-1286
• Parties: 22 Employee Benefits Cas. 2433 Jane DOE, Plaintiff, Appellee, v. TRAVELERS INSURANCE COMPANY, Defendant, Appellant. First Circuit
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 53

167 F.3d 53

22 Employee Benefits Cas. 2433

Jane DOE, Plaintiff, Appellee, v. TRAVELERS INSURANCE COMPANY, Defendant, Appellant.

No. 98-1286.

United States Court of Appeals,First Circuit.

Jan. 27, 1999.

Joan O. Vorster with whom James C. Donnelly, Jr., Charles B. Straus, III, and Mirick, O'Connell, DeMallie & Lougee, LLP were on brief for appellant

Katherine A. Hesse with whom David W. Healey, Doris R. MacKenzie Ehrens and Murphy, Hesse, Toomey & Lehane were on brief for appellee.

Before SELYA, Circuit Judge ALDRICH, Senior Circuit Judge, BOUDIN, Circuit Judge.

BOUDIN, Circuit Judge.

Travelers Insurance Company ("Travelers") appeals from a judgment against it in favor of Jane Doe (a pseudonym) for claims she brought in the district court under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. The events giving rise to Doe's law suit and the proceedings that ensued can be briefly summarized as follows.

In 1995, Jane Doe was the founder, chairperson and chief technical officer of a high tech firm. During the prior two years, she had been getting outpatient psychotherapy for depression. In January 1995, she attended a women's retreat where, she later said, she experienced a rush of repressed memories of childhood sexual abuse. Following this experience, Doe was afflicted by an increased sense of disquiet and depression, had trouble sleeping and eating, and suffered from repeated sudden floods of images and memories.

According to her medical records, Doe engaged in some self-destructive behavior between the retreat and the end of February. Once she wandered off into the snow for several hours at night. She overdosed on codeine at one point, had urges to cut herself, and formed some thoughts of suicide (the clinical phrase is "suicidal ideation") centering upon codeine overdosing. Her depression grew more severe during late February. On March 1, Doe nearly had an automobile accident when she had a "flashback" while driving at high speed.

At the urging of her psychiatrist, Dr. Nicholson Browning, Doe contacted the Human Resource Institute Hospital on February 23, 1995, with a view to possible hospitalization. Doe's company had an employee benefit health plan that comprised or included medical coverage under a policy issued by Travelers. The Travelers policy included inpatient hospital care for mental health needs, where justified under the policy, for up to 60 days subject to a 20 percent co-payment by the beneficiary. Apparently there followed some discussion between the hospital and Travelers that led Doe to believe that Travelers would likely cover her hospitalization and that the hospital would waive Doe's share.

On March 1, 1995, Doe asked Travelers to approve her admission to the hospital, which she entered on March 2. A three-page single spaced "admission note," compiled by Dr. Lisa Wolfe, the psychologist involved in Doe's care, concluded in "reason for hospitalization": "Deteriorating condition unmanageable outside of a hospital setting and serious suicide risk." Doe's treating psychiatrist, Dr. Nan Herron, also said that inpatient care was necessary and later supplied hospital notes covering the first several weeks of March that referred to suicidal gestures and impulses on Doe's part.

On March 3, a Travelers' representative acting as "patient advocate" advised Doe's doctors orally that Travelers would not approve inpatient treatment. ¹ The internal notes of the patient advocate indicate as reasons that there had been no suicidal ideation since Doe's hospitalization (a one-day period) and that she had been willing to "contract" for her safety with the hospital--apparently a commitment secured by the hospital from patients where possible--and that she had been admitted to an "open" unit subject to checks by hospital staff only every 15 minutes- --as opposed to close confinement or more frequent monitoring.

Doe remained in the hospital, paying out of her own pocket but insisting that Travelers reimburse her. Doe's doctors and psychologist wrote to Travelers and supplied more details and arguments for reimbursement. Travelers' patient advocate and a series of other Travelers personnel wrote letters in reply and consulted with physician advisors and medical reviewers who advised Travelers based on records as to Doe; the gist of these statements was that Doe's symptoms and the hospital's willingness to let her out of the hospital for brief daytime "leaves" showed that outpatient treatment was a feasible and obviously less costly alternative approach. The correspondence continued after Doe completed her inpatient treatment on or about March 20.

Ultimately, in May 1995, Travelers agreed to pay for the first two days of hospital treatment but not the balance. After further refusals of Travelers to pay more, Doe filed suit in a Massachusetts state court against Travelers for breach of contract and deceptive acts and practices. Travelers removed the case to federal district court where it has been treated, without dispute by the parties to this appeal, as one governed directly by ERISA. See Doe v. Travelers Ins. Co., 971 F.Supp. 623, 629 (D.Mass.1997). After discovery and a four-day non-jury trial, the district court decided the case on July 31, 1997, in favor of Doe. See id. at 639-41.

The district court concluded that Travelers' handling of Doe's claim had been flawed by procedural errors and by Travelers' improper delegation of authority to handle claims to other entities; that Doe had at least a colorable case for reimbursement; that reconsideration by Travelers was infeasible because it no longer retained authority to decide claims; and that therefore Doe should be reimbursed the amount of her unpaid hospitalization costs of $23,456.04. See Travelers, 971 F.Supp. at 641. The court also found that Travelers had violated ERISA by failing to supply Doe with certain mental health guidelines it had used in considering her claim and imposed $38,000 in penalties. See id. at 640.

The district court also concluded that it should award attorney's fees and costs in favor of Doe. See id. at 641. In later proceedings, it fixed the amount at $155,705.92 in fees and $1,264.70 in costs. Thereafter, a final judgment, which also provided for post-judgment interest, was entered covering hospital reimbursement, penalties, and attorney's fees and costs. Travelers now appeals, challenging every portion of the judgment.

It is common ground that Doe's rights against Travelers under the policy are governed by ERISA and not by state law. See id. at 629. Under ERISA, a plan beneficiary such as Doe may bring a civil action "to recover benefits due" under the plan or to enforce "rights" under the plan. 29 U.S.C. § 1132(a)(1)(B). Travelers concedes that under 29 U.S.C. § 1002(21), it has assumed a fiduciary responsibility to pay benefits due under the policy. See Travelers, 971 F.Supp. at 629. The first question we face is whether Doe is entitled to reimbursement under the policy in this case.

What is "due" to Doe under the policy is, in the first instance, defined by the terms of the policy. Under the policy, Doe is covered for hospitalization of the type in question--it is listed as one of the treatments available--but only if it is "medically necessary." The policy provides that Travelers "determines, in its discretion, if a service or supply is medically necessary," including consideration of whether "a less intensive" treatment would accomplish the task. Later language says that "[n]o benefits are payable unless the Patient Advocate determines the services are Medically Necessary."

Although the "discretion" and "no benefits" language could be read literally to make Travelers' decision final, Travelers quite sensibly does not take this extreme position. It says only that it is entitled to have its own decision reviewed deferentially, under an arbitrary and capricious standard, based on the information it had available when it made its decision. At first blush, the standard of review urged by Travelers is just what the Supreme Court endorsed in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), for ERISA benefit determinations where, as here, the plan language purports to reserve to the defendant discretion in administering the provisions in question.

Firestone did note that where the plan fiduciary exercising the discretion operates under "a conflict of interest," this is a "factor" in determining whether discretion has been abused. Id. at 115, 109 S.Ct. 948. What constitutes a conflict and how the factor is to be weighed were not explained, and naturally the cases in the lower courts are now somewhat divided. ² Here, of course, Travelers would pay the claim out of its own assets, a position the district court viewed as producing a conflict of sorts. Travelers, 971 F.Supp. at 630. Travelers says it is a very small claim payable out of very large assets; but small claims add up. On the other hand, Travelers can hardly sell policies if it is too severe in administering them.

The district court predicted that this circuit would adopt a standard for companies in Travelers' position that afforded the company latitude but gave "more bite" to the arbitrary and capricious standard, a notion suggested by a Seventh Circuit case. Chojnacki v. Georgia-Pacific Corp., 108 F.3d 810, 815 (7th Cir.1997). Thereafter, a panel of this court cited the "more bite" language with approval but then glossed it in terms that would make it inapplicable here. Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 184 (1st Cir.1998). Doyle stressed the benefit of a uniform test of discretion and concluded that the mere fact that an individual claim, if paid, would cost the decision maker something did not show that "the decision was improperly motivated." Id.

It seems to us that the requirement that Travelers' decision be "reasonable" is the basic...