904 F.2d 644 (11th Cir. 1990), 89-8634, Newell v. Prudential Ins. Co. of America
|Citation:||904 F.2d 644|
|Party Name:||Joe Rodger NEWELL, Jr., individually and as natural parent and guardian of minor Joe Rodger Newell, III., Plaintiff-Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.|
|Case Date:||June 28, 1990|
|Court:||United States Courts of Appeals, Court of Appeals for the Eleventh Circuit|
[Copyrighted Material Omitted]
James Lee Ford, Ford & Haley, Atlanta, Ga., for plaintiff-appellant.
Ben Kingree, III., Carter & Ansley, Atlanta, Ga., for defendant-appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before FAY and COX, Circuit Judges, and TUTTLE, Senior Circuit Judge.
FAY, Circuit Judge:
This appeal addresses the issue of the fiduciary obligations of an ERISA trustee that is also an insurance company. Plaintiff-appellant Newell and his family had health insurance coverage under his employer's group contract with defendant-appellant The Prudential Insurance Company of America (Prudential). When Newell's son suffered a medical problem requiring extended hospitalization, however, Prudential denied the greater part of the claim, declaring that its review of the medical records revealed that Newell's claim contained charges excludable under the policy. After unsuccessfully appealing Prudential's decision, Newell sued Prudential in Georgia state court. Prudential removed the case to federal court on the dual bases of diversity and federal question jurisdiction, the latter basis derived from the fact that Newell's claims were governed entirely by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1001, et seq., which preempted Newell's state causes of action. The district court ruled in favor of Prudential, holding that Prudential did not violate ERISA as a matter of law in authorizing a Prudential employee to make the determination of whether or not charges were excludable, that Prudential did not arbitrarily or capriciously deny the majority of Newell's claim for benefits, and that Prudential provided sufficient notice to Newell of its denial of his claims. We AFFIRM the district court on the first two issues; we REVERSE and REMAND for further findings on the matter of notice.
At all times relevant to this case, Joe Rodger Newell was an employee of Massey Fair Ingredient Sales, Inc. He and his family participated in Massey Fair's group insurance policy No. GSP-86888M with Prudential, under which they received term life, accidental death or dismemberment, and major medical insurance. The health insurance policy contains several limitations on eligible charges; most pertinent to this case is the following paragraph in the section entitled "Generally Excluded Charges":
The term "Generally Excluded Charges" is used only in a health care expense Coverage. When it is used, it includes all of the following....
(3) Charge for Unnecessary Services or Supplies: 1 A charge for services or supplies, including tests and check-up exams, that are not needed for medical care of a diagnosed Sickness or Injury. To be considered "needed", a service or supply must meet all of these tests:
(a) It is ordered by a Doctor.
(b) It is commonly and customarily recognized throughout the Doctor's profession as appropriate in the treatment of the Sickness or Injury.
(c) It is neither educational nor experimental in nature.
(d) It is not furnished mainly for the purpose of medical or other research.
Also, in the case of a Hospital stay, the length of the stay and Hospital services and supplies will be considered "needed" only to the extent Prudential determines them to be:
(a) related to the treatment of the Sickness or Injury; and
(b) not allocable to the scholastic education or vocational training of the patient.
Plaintiff's Exh. 1 at 6 [GCS 1011-(CR 011C)-1].
The policy also carries a Pre-Admission and Concurrent Review Service (PACRS) rider. As described by the district court in its factual findings,
[t]he rider provides that the general policy includes the tests for determination of need. However, pursuant to the rider, claimants must request that Prudential make a "determination of need." A determination of need is "a determination by Prudential, under the terms of the Coverage, that approves or disapproves a day or days of Inpatient Hospital Stay ... as needed for medical care of a diagnosed Sickness or Injury." [Plaintiff's Exh. 1 at] 45. The determination of need is to be made prior to admission. If Prudential finds "medical necessity" for admission, it will inform the doctor and the hospital, by phone, of the number of days of inpatient hospital stay that Prudential approves. The Policy provides that written notice will be sent to the claimant, the doctor and the hospital, indicating the number o[f] pre-authorized days.
The Policy also provides that it may be possible to extend the number of days of inpatient hospital stay that Prudential approves as needed for the medical care of the patient's condition; upon request being made, Prudential will make a new determination of need upon information received [from] the doctor.
Newell v. Prudential Ins. Co. of America, 725 F.Supp. 1233, 1235-36 (N.D.Ga.1989).
During the fall of 1986, it became apparent that Newell's son, Joe III, nicknamed "Bear," had a substance abuse problem and suffered from related depression. At first Bear underwent outpatient therapy, but after two months, his attending physician, Dr. Schmits, determined that Bear would be best served by intensive inpatient treatment. Bear was admitted on December 2, 1986, to Greenleaf Center Inc. (Greenleaf), a hospital that provides health care for people with psychiatric or substance abuse problems and has a specialized inpatient program for adolescents with such disorders.
On the day of Bear's admission, Cindy Sedman, the admissions and discharge coordinator for Greenleaf, contacted Prudential to find out about Bear's coverage. She learned that Bear was in fact covered under the policy, but that PACRS would have to make a determination of need for the inpatient hospital stay. Sedman then called PACRS and orally informed them of the estimated length of hospitalization, the diagnosis, and the treatment plan. On December 4, 1986, PACRS sent a form letter to Dr. Schmits confirming Bear's admission and requesting the admission notes and the estimated length of stay. Sedman mailed the requested information to PACRS on the same day.
PACRS approved seven days of hospital stay on December 5, 1986, and relayed that information to Sedman on December 9, 1986. On that same date PACRS apprised Greenleaf and Dr. Schmits of the procedure to obtain extensions of approved days. A PACRS internal memorandum dated December 17, 1986, reflects that 21 additional days were certified and that Sedman was so notified by telephone. When Dr. Schmits contacted PACRS two days later to request a further extension, PACRS advised him that the policy allotted a maximum of 30 days for psychiatric treatment and that the limit had been reached. Dr. Schmits clarified to PACRS that the diagnosis comprised not merely depression, a purely psychiatric malady, but substance abuse as well. PACRS responded with a request for additional records to substantiate this "change" in diagnosis.
Upon receiving the entire chart, on December 24, 1986, PACRS pre-certified coverage through January 13, 1987, a total of
42 days. PACRS notified Sedman of this extension on December 29, 1986. PACRS internal records indicate that after January 13, 1987, the case was to be put on "retro review"; that is, no further days would be pre-authorized, but rather the entire chart would be reviewed upon Bear's discharge and the days, services and supplies deemed necessary at that time would be approved for payment. The...
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