Brown v. Blue Cross and Blue Shield of Alabama, Inc.

• Decision Date: 25 April 1990
• Docket Number: No. 89-7151,89-7151
• Citation: 898 F.2d 1556
• Parties: , 12 Employee Benefits Ca 1571 Fred BROWN, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF ALABAMA, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1556

898 F.2d 1556

58 USLW 2671, 12 Employee Benefits Ca 1571

Fred BROWN, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF ALABAMA, INC., et al Defendants-Appellees.

No. 89-7151.

United States Court of Appeals Eleventh Circuit.

April 25, 1990.

Leo E. Costello, Costello & Stott, Birmingham, Ala., for plaintiff-appellant.

Lawrence B. Clark, Lange, Simpson, Robinson & Somerville, Sally S. Reilly, Timothy A. Palmer, Charles C. Pinckney, Birmingham, Ala., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Alabama.

Before JOHNSON, Circuit Judge, RONEY ^*, Senior Circuit Judge, and MELTON ^**, District Judge.

MELTON, District Judge:

Fred Brown ("Brown") was denied hospitalization benefits under a group health plan because he had not obtained a precertification of the hospital admission. The district court held that the decision to deny benefits under this ERISA plan was not arbitrary and capricious and entered summary judgment for defendants. Brown argues on appeal that there were material issues of fact and that the district court failed to apply the governing law. We reverse and remand for further proceedings.

Brown, an employee of Truck Rentals of Alabama, Inc., was a participant in Truck Rentals' group health care plan established pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1001 et seq. Blue Cross and Blue Shield of Alabama, Inc. ("Blue Cross"), provides insurance coverage under the plan for a monthly premium.

The plan automatically covers the cost of in-patient hospital care arising from a medical emergency but provides coverage in other cases only when Blue Cross has "approved and precertified the admission and stay" before the participant's admission to the hospital. Brown was in the hospital twice for the same condition. The first visit was covered as a medical emergency; the second was not.

Brown was admitted to St. Charles General Hospital in New Orleans, Louisiana, because of a sinus condition. The first hospitalization lasted from September 21 through September 26, 1987. The second began on September 29 and ended on October 6, 1987. During the second stay, Brown underwent surgery for his sinus condition. The trial court found that no preadmission certification was obtained for either period of hospitalization. Without a preadmission certification, coverage for hospital expenses depends upon whether a hospitalization was compelled by a "medical emergency."

When claims were filed for plan benefits, Blue Cross initially denied all coverage. The company later extended coverage to the first hospitalization as a medical emergency, but refused coverage for the second. Brown filed suit to compel payment for the second period of hospitalization. He urged two theories favoring coverage, one in which the second period is treated as a continuation of the first and another in which the second period is treated as an independent emergency situation.

The district court reviewed the denial of benefits under an arbitrary and capricious standard, consistent with the law in this Circuit at the time of the decision. See, e.g., Hoover v. Blue Cross & Blue Shield of Ala., 855 F.2d 1538, 1541 (11th Cir.1988); Griffis v. Delta Family-Care Disability & Survivorship Plan, 723 F.2d 822, 825 (11th Cir.) (adopting district court opinion), cert. denied, 467 U.S. 1242, 104 S.Ct. 3514, 82 L.Ed.2d 823 (1984). Brown asserts that the Supreme Court's recent decision of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. ----, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), decided after this case was before the district court, requires a de novo standard of review. That case, to the contrary, demonstrates that an arbitrary and capricious standard continues to be applicable here. ¹

Although Firestone does not alter in form the standard applied to review of the fiduciary's decision, the substance of review was subtly altered by the opinion. We examine herein the impact of this change. Our application of the Firestone opinion yields the conclusion that the decision of the district court must be reversed and remanded.

SCOPE OF REVIEW

Our review of the district court's grant of summary judgment begins with a brief statement of its scope. Judge Johnson has This appeal from grant of summary judgment is subject to plenary review. See, e.g., Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir.1989). We therefore apply the same legal standards that bound the district court. Id. The standard governing the grant of summary judgment is well-known and well expressed elsewhere, see id. at 933-34, so it will not be repeated here.

                identified an ambiguity in our prior statements of the scope of review in ERISA benefit denial review cases.  See Jett v. Blue Cross & Blue Shield of Ala., 890 F.2d 1137, 1140-41 (11th Cir.1989) (Johnson, J., concurring and dissenting).  The issue arises from the statement in Guy v. Southeastern Iron Workers' Welfare Fund, 877 F.2d 37 (11th Cir.1989), that "[i]n assessing Guy's contention that the Fund improperly denied him benefits, therefore, we must determine whether the district court's finding that the Fund's decision was arbitrary and capricious is clearly erroneous."    Id. at 39.    Read literally, this statement apparently conflicts with our precedents that have uniformly treated the conclusion that an action is arbitrary and capricious as a matter of law subject to de novo review.  See, e.g., Harris v. Pullman Standard, Inc., 809 F.2d 1495, 1499 (11th Cir.1987);  Anderson v. Ciba-Geigy Corp., 759 F.2d 1518, 1522 (11th Cir.), cert. denied, 474 U.S. 995, 106 S.Ct. 410, 88 L.Ed.2d 360 (1985);  McKnight v. Southern Life & Health Ins. Co., 758 F.2d 1566, 1569 (11th Cir.1985);  Helms v. Monsanto Co., 728 F.2d 1416 (11th Cir.1984).  But Guy should not be read so literally.  The discussion following the statement of the scope of review considers the district court's factual findings under the clearly erroneous standard but visits relevant legal principles anew.  See Guy, 877 F.2d at 39-40.    The actual exercise of de novo review over the legal conclusion belies any misconception otherwise suggested by the opinion
                

In our review of the substantive issue whether Blue Cross was arbitrary and capricious in its denial of Brown's claim for benefits, we "determine whether there was a reasonable basis for the decision [to deny benefits], based on the facts as known to the [fiduciary] at the time the decision was made." Jett, 890 F.2d at 1139. The concept of "reasonable basis," however, must be modified consistent with the following discussion of the application of the arbitrary and capricious standard in the present context.

STANDARD OF REVIEW FOR FIDUCIARY DECISIONS

In Firestone, the Court established de novo judicial review of an ERISA benefits denial decision "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." 109 S.Ct. at 956. Appellant does not argue that this principle would not apply to Blue Cross in this case. The Group Hospital and Major Medical Contract between Baggett Transportation Company and Blue Cross, which we take to be the ERISA benefit plan document ² (hereinafter "Contract Plan"), confers discretion on Blue Cross in the matter of benefits determinations. The provision states:

As a condition precedent to coverage, it is agreed that whenever [Blue Cross] makes reasonable determinations which are not arbitrary and capricious in the administration of the [plan] (including, without limitation, determinations whether services, care, treatment or supplies are Medically Necessary ...), such determinations shall be final and conclusive.

Contract Plan, Sec. IX(K). Notably, the division of ERISA duties between Baggett Transportation Company and Blue Cross provides It is expressly understood and agreed by the parties to the Contract that any and all duties assigned by ERISA to the "plan administrator" shall be deemed for purposes of this Contract as duties of the Employer and not those of [Blue Cross].

Id., Sec. XIII(D)(1). Thus, Blue Cross exercises its discretion as a fiduciary, not as plan administrator. ³ For our purposes, however, this distinction is not of consequence because Firestone applies equally to the decisions of fiduciaries and the plan administrator.

Before Firestone, several circuits undertook to vary the deference accorded trustee or fiduciary decisions, within the framework of the arbitrary and capricious standard, in reaction to the presence or absence of conflicting interests on the part of the decisionmaker. See, e.g., Sage v. Automation, Inc. Pension Plan & Trust, 845 F.2d 885, 895 (10th Cir.1988); Van Boxel v. Journal Co. Employees' Pension Trust, 836 F.2d 1048, 1052-53 (7th Cir.1987); Holland v. Burlington Indus., Inc., 772 F.2d 1140, 1149 (4th Cir.1985), sum. aff'd, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 559 (1986); Gilbert v. Burlington Indus., Inc., 765 F.2d 320, 328-29 (2d Cir.1985), sum. aff'd, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 558 (1986); Jung v. FMC Corp., 755 F.2d 708, 711-12 (9th Cir.1985); Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir.1982); Maggard v. O'Connell, 671 F.2d 568, 571 (D.C.Cir.1982); see also Gesina v. General Elec. Co., 162 Ariz. 39, 780 P.2d 1380, 1383-85 (App.) (adopting variable deference in original opinion decided before Firestone and adhering thereto in post-Firestone opinion on reconsideration), rev. denied, 162 Ariz. 39, 780 P.2d 1380 (1989). The Court's opinion in Firestone serves to underscore the perceptiveness of these cases. ⁴ In the same paragraph in which the Court gave its approval to plans that confer discretion on benefits decisionmakers, the Court added, "Of course, if a benefit plan gives discretion to an administrator or fiduciary who is operating Our task is to develop a coherent method for integrating factors...