Kunin v. Benefit Trust Life Ins. Co.

• Decision Date: 27 July 1990
• Docket Number: No. 88-6573,88-6573
• Citation: 910 F.2d 534
• Parties: 12 Employee Benefits Ca 1221 Daniel KUNIN, Plaintiff-Appellee, v. BENEFIT TRUST LIFE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 534

910 F.2d 534

12 Employee Benefits Ca 1221

Daniel KUNIN, Plaintiff-Appellee, v. BENEFIT TRUST LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 88-6573.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 2, 1989.

Decided March 21, 1990.

As Amended on Denial of Rehearing July 27, 1990.

Robert F. Keehn, Booth, Mitchel & Strange, Los Angeles, Cal., for defendant-appellant.

Sanford M. Gage and Thomas F. Borcher, Beverly Hills, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before NORRIS, REINHARDT and TROTT, Circuit Judges.

REINHARDT, Circuit Judge:

Benefit Trust Life Insurance Company ("Benefit Trust") appeals the decision of the district court awarding benefits to Daniel Kunin ("Kunin"). Kunin, the Senior Vice-President of Maxim's Beauty Salons, Inc., incurred over $50,000 in medical bills for the treatment of his child for autism. Kunin sought reimbursement of his expenses under a group health insurance policy issued to his employer; the parties agree that this policy is itself an "employee welfare benefit plan" governed by ERISA, and that Benefit Trust functioned as both insurer and plan administrator. Following a brief investigation, Benefit Trust agreed to pay $10,000, but no more, on the ground that autism fell within the policy's limitation for "mental illness." The district court concluded that autism is not a mental illness and that the denial of benefits was arbitrary and capricious, and ordered that the claim be paid in full. We agree that Benefit Trust was obligated to pay the full amount of the claim.

Benefit Trust's medical director's cursory investigation did not provide reasonable grounds for determining that autism is a mental illness. The testimony of Kunin's experts amply supports the finding that Benefit Trust's denial of benefits on the basis of that inquiry was arbitrary and capricious. Moreover, it is unclear whether the term "mental illness" encompasses autism. Under the law of all fifty states and the District of Columbia, where an unclear or ambiguous term is used in an insurance policy, the ambiguity must be construed in favor of the insured. We therefore hold, in the alternative, that this rule of construction applies in the case before us, whether as a uniform rule of federal common law, or because federal common law incorporates state law on this point.

FACTS

Benefit Trust is the insurer and plan administrator of a group health and medical policy which covers Kunin by virtue of his employment status with Maxim's. The policy is an "employee welfare benefit plan" as defined by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1002(1).

In 1986 Kunin's son, Alex, received treatment for autism for approximately thirty days at the UCLA Neuropsychiatric Institute. Having incurred $54,696.96 in hospital bills as a result of his son's stay, Kunin submitted a claim to Benefit Trust.

The policy limits medical benefits for "mental illness or nervous disorders" to $10,000 per calendar year. Benefit Trust refused to pay any amount in excess of that sum because it determined that autism was a mental illness within the meaning of the policy, and was therefore subject to the policy's limiting clause. This decision was based on the recommendation of Dr. Zolot, Benefit Trust's medical director. Dr. Zolot made the determination that autism was a mental illness after having informal conversations with three psychiatrists, whose experience with autism is unknown, and after reviewing a textbook definition of autism which states that autism is generally accepted to be organically based, although it was once thought to be "primarily psychiatric."

Kunin filed suit in state court, challenging Benefit Trust's interpretation of the policy. Benefit Trust removed the matter to federal court, asserting federal question jurisdiction under ERISA. Kunin acknowledged this basis of federal jurisdiction, conceded that his state claims were preempted, and proceeded solely on the basis of his ERISA claim.

THE DISTRICT COURT OPINION

The issue put to the district court by the parties was whether Benefit Trust's denial Although insurance contract terms are interpreted as a lay person would interpret them, the district court primarily considered the testimony of experts. However, it, correctly, relied on that testimony solely in order to determine the "plain and ordinary" meaning of the term "mental illness." Kunin's expert, Dr. Betty Jo Freeman, testified that "mental illness" refers to "a behavioral disturbance with no demonstrable organic or physical basis.... [It] stems from reaction to environmental conditions as distinguished from organic causes." Autism clearly falls outside the scope of mental illness under this definition. Dr. Ritvo, Kunin's second expert, agreed with the definition, and testified that his experiences with families of autistic individuals have shown that the disease is not commonly perceived as a mental illness. ¹ The court found the testimony of these experts "clear, authoritative, and entirely convincing," and found their definition of "mental illness" consistent with the plain and ordinary meaning of the term. Id. at 1346.

of benefits, based on its view that autism was a mental illness, was arbitrary and capricious. The court noted that while administrators' decisions are normally reviewed under an "arbitrary and capricious" standard, less rigorous standards have been applied when the administrator is not entirely impartial or objective, and may have a vested interest in denying benefits. It said that where the plan administrator is also the insurer, as in the present case, a lower standard of review might be appropriate. Kunin v. Benefit Trust Life Ins. Co., 696 F.Supp. 1342, 1345 (C.D.Cal.1988). However, since it concluded that the decision of Benefit Trust could be overturned even under the "arbitrary and capricious" standard, the court declined to decide whether a lower standard of review would ordinarily be applicable. Id.

Benefit Trust's expert, Dr. Marvin Gillick, first offered a definition of "mental disorder" found in the American Psychiatric Association's Psychiatric Glossary. "Mental disorder" is defined as "an illness with ... impairment in functioning due to a social, psychologic, genetic, physical/chemical, or biologic disturbance.... The illness is characterized by symptoms and/or impairment in functioning." ²

The district court rejected Dr. Gillick's definition, noting that it could include a myriad of ailments that would never be considered mental illnesses, such as cancer or a broken leg. Dr. Gillick then suggested that mental illness was "an aberrant behavior syndrome or manifestation which has its basis in the neurological axis and/or central nervous system, but whose precise etiology is uncertain." The court rejected this definition as well, because it would exclude illnesses clearly within the ambit of mental illness solely because their causes are known. Id.

The court then accepted the definition offered by Kunin's experts. It held that including autism within the limitation clause covering mental illness was not a reasonable interpretation of the contract and the plan, and that the denial of benefits was arbitrary and capricious, and in violation of 29 U.S.C. Sec. 1132. Kunin was awarded the claimed benefits plus pre-judgment interest. Id. at 1346-47.

ANALYSIS

A. The Standard of Review

1. Reviewing the ERISA Administrator's Denial of Benefits

Until recently in this circuit, denial of benefits by an ERISA administrator could ordinarily only be reversed by the district court if the decision was "arbitrary, capricious, made in bad faith, not supported by substantial evidence or erroneous as a matter of law." Johnson v. District 2 Marine Eng'rs Beneficial Ass'n, 857 F.2d 514, 516 (9th Cir.1988). An administrator's opinion was said not to be arbitrary or capricious "if it [was] a reasonable interpretation of the plan's terms and was made in good faith." Dockray v. Phelps Dodge Corp., 801 F.2d 1149, 1152 (9th Cir.1986). However, when an administrator had a conflict of interest, then the district court was required to give the determination less deference than ordinarily afforded under the arbitrary and capricious standard. Id. In the present case, Benefit Trust has a conflict of interest, because it was the insurer as well as the administrator of the plan.

After the district court issued its opinion, the Supreme Court adopted a substantially different rule concerning the standard of review. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989), the Court held that denial of benefits challenged under section 1132(a)(1)(B) should be reviewed de novo unless the plan gives the administrator the authority to exercise discretion in determining ineligibility or construing the terms of the plan. Kunin would have this court review Benefit Trust's denial of benefits under the newly announced de novo standard.

While acknowledging that after Firestone the administrator's decision would ordinarily be reviewed de novo, Benefit Trust contends that here it tried the case in the lower court under the "arbitrary and capricious" standard, ³ and that because of its reliance on that standard, it would be improper for us to review the case as if a different standard had been applicable. We will assume, without deciding, that Benefit Trust is correct in this regard, although we have substantial doubt that it is. Among other reasons, we see little chance that Benefit Trust was prejudiced by any reliance on the more stringent standard of review.

For purposes of this appeal, therefore, we will review the district court's decision on the assumption that it was required to determine whether Benefit Trust's denial of Kunin's claim for benefits was arbitrary and capricious. In doing so we, like the district court,...