Pitman v. Blue Cross and Blue Shield of Oklahoma, 93-5026

• Citation: 24 F.3d 118
• Decision Date: 11 May 1994
• Docket Number: No. 93-5026,93-5026
• Parties: 18 Employee Benefits Cas. 1548 Sharon PITMAN, Wife of Gale Pitman, Deceased, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF OKLAHOMA, Individually and as Trade Name of Group Health Insurance of Oklahoma, Inc., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 118

24 F.3d 118

18 Employee Benefits Cas. 1548

Sharon PITMAN, Wife of Gale Pitman, Deceased, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF OKLAHOMA, Individually and as

Trade Name of Group Health Insurance of Oklahoma,

Inc., Defendant-Appellee.

No. 93-5026.

United States Court of Appeals, Tenth Circuit.

May 11, 1994.

Sandy S. McMath (Ronald W. Horgan, Tulsa, OK, with him on the briefs), Little Rock, AR, for plaintiff-appellant.

Donald M. Bingham (Tom H. Gudgel with him on the briefs), Riggs, Abney, Neal & Turpen, Tulsa, OK, for defendant-appellee.

Before LOGAN and MOORE, Circuit Judges, and OWEN, District Judge. ^*

JOHN P. MOORE, Circuit Judge.

This appeal arises out of a dispute over the provisions of an employee welfare benefit plan and presents the problem of how a court must examine plan interpretations made by an administrator who is also the plan's insurer. The district court, applying recognized legal principles of review, granted summary judgment to the insurer. We conclude, however, the court erred by not considering the insurer's apparent conflict of interest in determining whether deference should be given to the insurer's interpretation of coverage. We affirm in part, reverse in part, and remand.

A.

In August 1990, Gale Pitman, whose wife Sharon had subscribed to her employer's group medical insurance policy (the Policy) with Blue Cross and Blue Shield of Oklahoma (Blue Cross), was diagnosed with multiple myeloma. ¹ Mr. Pitman, a beneficiary under the Policy, began a course of standard dose chemotherapy to treat the disease. Because chemotherapy is a "Covered Service" under the Policy, Blue Cross paid all the claims Mr. Pitman submitted for this initial treatment. In August 1991, however, after tests showed his cancer in remission, Mr. Pitman's treating physician recommended a more aggressive therapy consisting of high dose chemotherapy (HDC) accompanied by an autologous bone marrow transplant (ABMT) ² to prolong the duration of remission. The cost of this treatment exceeded $100,000.

In the meantime, on May 1, 1991, effective July 1, 1991, Blue Cross promulgated an Endorsement Respecting Human Organ and Tissue Transplant Services (the Amendment) in which it specifically excluded ABMT for the treatment of multiple myeloma. ³ On the basis of this exclusion, Blue Cross denied Mr. Pitman's request for preauthorization for HDC and ABMT on January 28, 1992.

In May 1992, Mr. Pitman filed suit under 29 U.S.C. Sec. 1132(e)(1), alleging as a result of Blue Cross's breach of contract and implied covenant of good faith and fair dealing he "suffered extreme mental anguish and emotional distress" and was "placed in fear of losing his life," and "forced to make of himself a public spectacle begging funds from friends, neighbors, and total strangers in order to purchase the health care to which he is entitled under his contract with the Defendant...." Mr. Pitman sought a preliminary injunction to bar Blue Cross from denying his eligibility for treatment and a declaratory judgment the Policy remained in effect entitling him to "immediate certification for the benefit of bone marrow transplantation." Blue Cross moved for summary judgment.

Upon initial examination, the district court partially granted Blue Cross's motion on the ground Oklahoma's law of tortious breach of an insurance contract and an insurer's breach of fiduciary duty was not preserved by ERISA's savings clause, 29 U.S.C. Sec. 514(b)(2)(A). Nevertheless, the district court found disputed material facts precluded summary judgment on Mr. Pitman's claim Blue Cross breached its fiduciary duty under ERISA. However, upon further briefing, the district court granted Blue Cross's motion to amend its order, relying on Wilson v. Group Hospitalization & Medical Servs., Inc., 791 F.Supp. 309 (D.D.C.1992). The court held, unlike the circumstances in Wilson, in this case because neither the notice of Amendment nor the Amendment itself was ambiguous, no material facts remained in dispute to preclude summary judgment on whether Blue Cross breached its fiduciary duty to its insured. The court dismissed the action. Two months later, Mr. Pitman died although he had undergone the HDC/ABMT treatment. ⁴

In this appeal, Sharon Pitman ⁵ contends the district court erred in granting summary judgment for Blue Cross without examining the inherent conflict of interest underlying its Amendment to the Policy. That conflict, she maintains, precipitated Blue Cross's breach of its medical insurance contract under Oklahoma law and its breach of fiduciary duty under ERISA.

B.

In substance, we construe this suit under 29 U.S.C. Sec. 1132(a)(1)(B) ⁶, the action directed principally at recovering benefits under the Policy. ⁷ The parties do not dispute the Policy is an employee benefit plan governed by ERISA. 29 U.S.C. Sec. 1002(1). Instead, they differ on the extent to which ERISA resolves the present claims and the standard of review employed to evaluate the substantive issue.

Indeed, there are two standards of review required here. Our review of the district court's granting summary judgment is plenary, utilizing the same legal standards that circumscribed the district court. Repetition of that standard abounds. See Applied Genetics Int'l, Inc. v. First Affiliated Secs., Inc., 912 F.2d 1238, 1241 (10th Cir.1990); Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 143 (10th Cir.1988); Fed.R.Civ.P. 56(c).

The Supreme Court has also circumscribed our review of the underlying substantive law. "[A] denial of benefits challenged under Sec. 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989). "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 'facto[r] in determining whether there is an abuse of discretion.' " Id.

C.

Mrs. Pitman's first issue, that Oklahoma's law of tortious breach of contract governs Blue Cross's unilateral act of divesting by subsequent amendment already vested benefits, is illuminated by a spate of cases, FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987); and Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), each extending the reach of ERISA preemption, excising these state causes of action from its remedial scheme. Against this precedent, plaintiff has directed us to no exception to Sec. 514(b), 29 U.S.C. 1144(b), the deemer clause, to place the claim of tortious breach of contract under the aegis of the savings clause, Sec. 514(b)(2)(A), 29 U.S.C. Sec. 1144(b)(2)(A), or to distinguish this case from the resolution in Pilot Life.

Moreover, Congress has distinguished between "employee pension benefit plans" and "employee welfare benefit plans," exempting the latter from much of ERISA's panoply of requirements including its vesting provisions. "Welfare benefits such as medical insurance ... are not subject to the rather strict vesting, accrual, participation, and minimum funding requirements that ERISA imposes on pension plans." Wise v. El Paso Natural Gas Co., 986 F.2d 929, 935 (5th Cir.1993); see 29 U.S.C. Secs. 1051 and 1081. "[T]he employer may modify or withdraw these benefits at any time, provided the changes are made in compliance with ERISA and the terms of the plan." Doe v. Group Hospitalization & Medical Servs., 3 F.3d 80, 84 (4th Cir.1993).

Consequently, plaintiff can look neither to state law nor ERISA's own regulation of employee welfare benefit plans to support her contention Blue Cross cannot unilaterally divest "vested benefits" under the Policy. The district court, therefore, correctly granted summary judgment to Blue Cross on this issue.

D.

In granting summary judgment on Mrs. Pitman's claim Blue Cross breached its fiduciary duty in denying benefits for her husband's HDC/ABMT treatment, the district court relied on Wilson v. Group Hospitalization, 791 F.Supp. 309. In Wilson, as here, the court evaluated plaintiff's claim for a preliminary injunction to enjoin her Blue Cross plan from refusing to pay for HDC/ABMT to treat her advanced breast cancer. As the court proceeded through the steps required for injunctive relief, it found the substance of the notice of a change of benefits to be unsatisfactory. That finding coupled with the presence of an "insurance carrier which both issues a policy and administers it" and whose "dual roles [ ] create an inherent conflict of interest," id. at 312, refocused the court's analysis of the merits of the denial of benefits. After balancing all of the interests involved, the Wilson court granted the preliminary injunction. ⁸

In this case, the district court erred, however, by assuming Wilson stands for the proposition that finding the notice and amendment unambiguous ends the inquiry. The decision to amend the plan which underlies the denial of benefits must remain the focus of review, especially when a plan's administrator deemed the employee's fiduciary under ERISA is also the plan's insurer. The Eleventh Circuit has noted:

Because an insurance company pays out to beneficiaries from its own assets rather than the assets of a trust, its fiduciary role lies in perpetual conflict with its profit-making role as a business. That is, when an insurance company serves as ERISA fiduciary to a plan composed solely of a policy or contract issued by that company, it is exercising discretion over a situation for which it incurs "direct, immediate expense as a result of benefit determinations favorable to [p]lan participants."

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