Eugene S. v. Horizon Blue Cross Blue Shield of New Jersey

• Decision Date: 15 November 2011
• Docket Number: No. 10–4225.,10–4225.
• Citation: 52 Employee Benefits Cas. 2432,663 F.3d 1124
• Parties: EUGENE S., Plaintiff–Appellant, v. HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

52 Employee Benefits Cas. 2432

663 F.3d 1124

EUGENE S., Plaintiff–Appellant,

v.HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, Defendant–Appellee.

No. 10–4225.

United States Court of Appeals, Tenth Circuit.

Nov. 15, 2011.

Brian King, Salt Lake City, UT, for Plaintiff–Appellant.

Mary Wood of Wood, Jenkins, L.L.C., Salt Lake City, UT, for Defendant–Appellee.

Before KELLY, LUCERO, and GILMAN ^*, Circuit Judges.KELLY, Circuit Judge.

Plaintiff–Appellant Eugene S. appeals from the district court's denial of his motion to strike and entry of summary judgment in favor of Defendant–Appellee Horizon Blue Cross Blue Shield of New Jersey (“Horizon BCBSNJ” or “Horizon”). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

Background

Eugene S. sought coverage for his son A.S.'s residential treatment costs from his employer's ERISA benefits insurer. Aplt.App. 1–6. Horizon's delegated third-party plan administrator, Magellan Behavioral Health of New Jersey, LLC (“Magellan”), originally denied the claim and explained that Mr. S.'s son qualified for intensive outpatient treatment, but not for residential treatment. Magellan affirmed its initial denial of residential treatment benefits through several appeals by both Mr. S. and the residential treatment center. On Mr. S.'s final appeal, Magellan approved and provided benefits for residential treatment between August 10 and November 2, 2006, but reiterated that Mr. S.'s son qualified for intensive outpatient treatment only between November 3, 2006 and June 12, 2007, and refused residential treatment benefits during that period. Id. Having exhausted his administrative appeals, Mr. S. filed this action challenging Horizon's denial of benefits under ERISA (29 U.S.C. § 1132(a)(1)(B)), on July 24, 2009. Id.

Mr. S. and Horizon filed cross-motions for summary judgment on July 6, 2010. Aplt.App. 12–13, 56–58. That same day, Horizon also filed a declaration, including the terms of Horizon's delegation of authority to Magellan to administer mental health claims in a Vendor Services Agreement (“VSA”). Aplt.App. 95a–134a. Mr. S. moved to strike that declaration as procedurally barred and untimely. Aplt.App. 238–244a. The district court denied the motion to strike, Aplt.App. 337–43, and granted Horizon summary judgment, Aplt.App. 323–36. The district court held that an “arbitrary and capricious” standard of review applied, and that neither Horizon nor Magellan had acted in an arbitrary or capricious manner in denying the contested claim. Aplt.App. 327–36.

On appeal, Mr. S. makes three arguments: first, that the district court erred by denying his motion to strike and allowing the VSA into evidence. Aplt. Br. 28–36. Second, that the district court erred in reviewing Horizon's ¹ denials of benefits under an arbitrary and capricious, rather than a de novo, standard. Aplt. Br. 36–45. Third, that Horizon improperly denied him benefits under the terms of his ERISA benefits plan. Aplt. Br. 46–60.

Discussion

I. Motion to Strike

Mr. S. contends that the district court erred by refusing to strike the VSA and by concluding that its admission would be harmless. Aplt. Br. 28. Mr. S. does not challenge, and has never challenged, the authority of Magellan to act as third-party plan administrator on behalf of Horizon. Our case law recognizes that such delegations occur without altering the applicable standard of review. Geddes v. United Staffing Alliance Emp. Med. Plan, 469 F.3d 919, 926 (10th Cir.2006); Gaither v. Aetna Life Ins. Co., 394 F.3d 792, 801 (10th Cir.2004).

We review the denial of a motion to strike for abuse of discretion. Jones v. Barnhart, 349 F.3d 1260, 1270 (10th Cir.2003). Mr. S.'s argument that the district court erred in considering evidence outside the administrative record is without merit. We have cautioned against too broad of a reading of our precedent regarding supplementation of an ERISA administrative record. Murphy v. Deloitte & Touche Group Ins. Plan, 619 F.3d 1151, 1157–59 (10th Cir.2010). Although supplementation regarding eligibility for benefits is not permitted, supplementation is allowed for assessing dual-role conflict of interest claims. Id. at 1162. Given that Mr. S. asserted a dual-role conflict of interest against a plan administrator, Aplt.App. 31–33, the district court certainly was not prohibited from supplementing the administrative record with the VSA.

Mr. S. next argues that, even if the district court had authority to supplement the record with the VSA, the VSA should have been disclosed as part of Rule 26 initial disclosures, and certainly prior to a motion for summary judgment. Fed.R.Civ.P. 26(a)(1)(A); Aplt. Br. 28–36. He contends that the proper remedy for such a failure to disclose is exclusion of the evidence from the proceedings. Fed.R.Civ.P. 37(c)(1); Aplt. Reply Br. 12. Horizon contends that ERISA appeals are exempt from initial disclosure requirements under Rule 26 as “action[s] for review on an administrative record.” Fed.R.Civ.P. 26(a)(1)(B)(i). We need not weigh in on this dispute because we agree with the district court that, even if Horizon should have disclosed the VSA earlier, any error would be harmless or justified in the present case.

Whether a failure to disclose is harmless and/or justified under Rule 37 depends upon several factors that a district court should consider in exercising its discretion. Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 993 (10th Cir.1999). These factors include: “(1) the prejudice or surprise to the party against whom the testimony is offered; (2) the ability of the party to cure the prejudice; (3) the extent to which introducing such testimony would disrupt the trial; and (4) the moving party's bad faith or willfulness.” Id. According to the district court, no evidence of bad faith or willfulness existed, and Mr. S. should not have been surprised that an agreement between Horizon and Magellan existed, given that each letter denying benefits explained as much. Aplt.App. 340. Nor was there any evidence that admitting the VSA would be disruptive to the litigation process. The district court also noted that Mr. S. “never requested a copy of the [VSA] in discovery or otherwise.” Aplt.App. 341.

The district court permissibly exercised its discretion. The VSA became relevant given Mr. S.'s claim of a dual-role conflict. Before that, there was no reason for Horizon or Magellan to enter the VSA into the administrative record. The district court could not hope to evaluate that alleged conflict without the VSA. Because our case law allows for the introduction of supplemental evidence relating to a dual-role conflict, and because Horizon's failure to disclose the VSA under Rule 26 was harmless to Mr. S., justified by Mr. S.'s allegation, or both, we will not overturn the district court's ruling.

II. Standard of Review for Denial of Benefits

Mr. S. argues that the appropriate standard of review is de novo. He further argues that, even if we decide that the appropriate standard of review is arbitrary and capricious, we must alter that standard based on Horizon's structural, or dual-role, conflict of interest. Aplt. Br. 36–45. If we determine that de novo review is appropriate, we need not consider whether a dual-role conflict should affect our analysis. We address Mr. S.'s arguments in turn.

Our review of orders granting summary judgment is de novo, applying the same standard as the district court. LaAsmar v. Phelps Dodge Corp. Life, Accidental Death & Dismemberment & Dependent Life Ins. Plan, 605 F.3d 789, 795 (10th Cir.2010). Here, the parties submitted this issue on cross-motions for summary judgment, and we must determine, without deference to the district court, what the standard of review should be. Id. at 796.

A. Whether Horizon is Entitled to Deferential Review

“ ‘[A] denial of benefits' covered by ERISA ‘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.’ ” Id. at 796 (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989)). “Where the plan gives the administrator discretionary authority, however, ‘we employ a deferential standard of review, asking only whether the denial of benefits was arbitrary and capricious.’ ” Id. at 796 (quoting Weber v. GE Group Life Assurance Co., 541 F.3d 1002, 1010 (10th Cir.2008)). “Under this arbitrary-and-capricious standard, our ‘review is limited to determining whether the interpretation of the plan was reasonable and made in good faith.’ ” Id. at 796 (quoting Kellogg v. Metro. Life Ins. Co., 549 F.3d 818, 825–26 (10th Cir.2008)). De novo review is the default position; the “burden to establish that this court should review its benefits decision ... under an arbitrary-and-capricious standard” falls upon the plan administrator. Id. at 796 (citing Gibbs ex rel. Estate of Gibbs v. CIGNA Corp., 440 F.3d 571, 575 (2d Cir.2006)).

Our analysis generally turns on a review of plan language to determine whether that language grants discretion to the plan administrator in reviewing benefits claims. Mr. S. argues, however, that a recent Supreme Court case, CIGNA Corp. v. Amara, ––– U.S. ––––, 131 S.Ct. 1866, 179 L.Ed.2d 843 (2011), makes our analysis more complex. Specifically, Mr. S. argues that, under Amara, “while SPDs [summary plan descriptions] advise participants and beneficiaries of their rights and obligations about [ sic ] the ERISA plan, those SPDs are not itself [ sic ] part of the plan.” Aplt. Reply Br. 18 (citing Amara, 131 S.Ct. at 1876–78). Mr. S. essentially makes one or both of two arguments: (1) because the record does not include “the documents that actually govern the plan, and from which the SPD is derived,” we cannot verify that any discretion granted by the SPD is valid; and/or (2) “the grant of discretionary authority aris...