Conn. Gen. Life Ins. Co. v. Humble Surgical Hosp., L.L.C.

• Decision Date: 19 December 2017
• Docket Number: No. 16-20398,16-20398
• Citation: 878 F.3d 478
• Parties: CONNECTICUT GENERAL LIFE INSURANCE COMPANY; Cigna Health and Life Insurance Company, Plaintiffs–Appellants v. HUMBLE SURGICAL HOSPITAL, L.L.C., Defendant–Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

878 F.3d 478

CONNECTICUT GENERAL LIFE INSURANCE COMPANY; Cigna Health and Life Insurance Company, Plaintiffs–Appellants

v.HUMBLE SURGICAL HOSPITAL, L.L.C., Defendant–Appellee

No. 16-20398

United States Court of Appeals, Fifth Circuit.

FILED December 19, 2017

Joshua Benjamin Simon, Warren Haskel, Kirkland & Ellis, L.L.P., New York, NY, Brian Pidcock, Cameron Phair Pope, Esq., John Bruce Shely, Esq., Andrews Kurth Kenyon, L.L.P., Houston, TX, for Plaintiffs–Appellants.

Brian Douglas Melton, John Pierre Lahad, Chanler Ashton Langham, Jonathan Jeffrey Ross, Esq., Susman Godfrey, L.L.P., Houston, TX, for Defendant–Appellee.

Before BARKSDALE, DENNIS, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

We are tasked with deciding whether the district court erred when it granted judgment for Humble Surgical Hospital ("Humble") on its claims for damages against the Connecticut General Life Insurance Company and its parent-corporation, Cigna Health and Life Insurance Company, (collectively, "Cigna") under the Employee Retirement Income Security Act of 1974 (ERISA) §§ 502(a)(1)(B) and 502(a)(3). The district court failed to apply the required abuse of discretion analysis; other courts have upheld Cigna’s interpretation of its insurance plans; and there was substantial evidence supporting Cigna’s interpretation. Accordingly, we reverse the district court. Moreover, as Cigna is not a named plan administrator, we reverse the district court’s award of ERISA penalties against Cigna. We vacate in part the district court’s dismissal of Cigna’s claims against Humble. Finally, we vacate the district court’s award of attorneys’ fees and remand for further consideration.

FACTS AND PROCEEDINGS

Cigna is a managed healthcare company that oversees both ERISA and welfare benefit plans, as well as private policies for health insurers. Humble is a five-bed, physician-owned hospital in Harris County, Texas, that is considered an "out-of-network" provider under Cigna insurance plans. Between 2010 and the commencement of this suit in 2016, it performed hundreds of non-emergency procedures on Cigna members.

As part of its admissions process, Humble required patients to sign a form that included an irrevocable "Assignment of Benefits"—which made Humble the beneficiary of ERISA plans and non-ERISA contracts. The admissions form also included a personal guarantee that the patient would "pay ... for all services and products administered to the patient." For each claim submitted to Cigna, Humble certified that it had previously acquired this assignment of benefits.

For several months after Humble opened, Cigna processed Humble’s claims without dispute, relying on two third-party repricing entities to negotiate "allowable" amounts and pricing agreements. Then in October 2010—after processing a $168,980 charge for "a fairly noncomplex, outpatient surgical procedure"—Cigna began flagging Humble’s claims and funneling them through its Special Investigations Unit. As part of its investigation, Cigna sent surveys to all of its members who had received treatment at Humble and had their claims paid by Cigna. On the basis of 113 members’ responses, Cigna concluded that Humble was engaged in "fee-forgiving"—i.e., waiving patients’ co-insurance or deductible fees. Cigna also concluded that Humble was intentionally inflating its prices to increase reimbursement fees.

In 2011, Cigna forwarded Humble an inquiry, seeking an explanation of Humble’s collection policy regarding patient deductibles, co-pays, and co-insurances. It further requested the patient ledgers of ten specific patients. In response, Humble assured Cigna that "it is the policy of [Humble] to hold its patients responsible for the full payment of their respective out-of-network responsibilities and obligations for services rendered at our facility." It also provided Cigna with a summary chart containing "collection notes" for each of the specified accounts. Nevertheless, Cigna continued to suspect Humble was engaged in fee-forgiving, and refused to process Humble’s claims without proof that the member had fully paid his co-pay or co-insurance. If a member paid less than his full co-pay or co-insurance, Cigna would pay what it deemed to be its "proportionate share," in accordance with Cigna’s own interpretation of the exclusionary language contained in its self-funded plans.¹

Cigna sued Humble, seeking over $5 million in alleged overpayments. Humble then counterclaimed under ERISA and Texas state common law, alleging among other things: (1) underpayment, nonpayment, or delayed payment of 595 claims; (2) breach of fiduciary duty; and (3) failure to comply with requests for plan documents.

After a nine-day bifurcated bench trial, Humble moved for Judgment on Partial Findings, which the district court granted. The district court concluded that Cigna’s claims and defenses failed as a matter of law. The district court awarded Humble $11,392,273 in damages and $2,299,000 in penalties.

Both parties then moved for attorneys’ fees. The district court denied Cigna’s motion and awarded Humble $2,743,790 in attorneys’ fees. Cigna timely appealed.

STANDARD OF REVIEW

"On appeal from a bench trial, this court review[s] the factual findings of the trial court for clear error and conclusions of law de novo ." George v. Reliance Standard Life Ins. Co. , 776 F.3d 349, 352 (5th Cir. 2015) (internal quotation marks omitted) (alterations in original). "Under de novo review, we apply the same standard to the Plan Administrator’s decision as did the district court." Id. (quoting Holland v. Int’l Paper Co. Ret. Plan , 576 F.3d 240, 246 (5th Cir. 2009) ). "[W]hen an administrator has discretionary authority with respect to the decision at issue, the standard of review should be one of abuse of discretion." Vega v. Nat’l Life Ins. Servs., Inc. , 188 F.3d 287, 295 (5th Cir. 1999) (en banc), overruled on other grounds by Metro. Life Ins. Co. v. Glenn , 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008).

DISCUSSION

I. Cigna’s Exclusionary Language Defense

Cigna contends that "[t]he district court’s judgment that Cigna underpaid Humble’s claims should be reversed." Cigna does not dispute that it consistently refused to pay the billed charges on hundreds of its member accounts for medical procedures performed at Humble. Instead, Cigna raised its interpretation of the exclusionary language in its plans as an affirmative defense. Cigna argues that the district court erred by concluding that this defense failed as a matter of law. We agree.

Because "the various plans at issue vest [Cigna] with discretionary authority to determine eligibility for benefits," we apply the abuse of discretion standard—as the district court should have. The Fifth Circuit has adopted a multi-step process for determining whether a plan administrator such as Cigna abused its discretion in construing a plan’s terms. "The first question is whether Cigna’s reading of the plans is ‘legally correct.’ " N. Cypress Med. Ctr. Operating Co. v. Cigna Healthcare, 781 F.3d 182, 195 (5th Cir. 2015). "If so, the inquiry ends and there is no abuse of discretion." Stone v. UNOCAL Termination Allowance Plan , 570 F.3d 252, 257 (5th Cir. 2009) (citing Crowell v. Shell Oil Co. , 541 F.3d 295, 312 (5th Cir. 2008) ). "Alternatively, if the court finds [Cigna’s] interpretation was legally incorrect, the court must then determine whether [Cigna’s] decision was an abuse of discretion." Id. "This is the functional equivalent of arbitrary and capricious review: ‘[t]here is only a semantic, not a substantive, difference between the arbitrary and capricious and the abuse of discretion standards in the ERISA benefits review context.’ " Anderson v. Cytec Indus., Inc., 619 F.3d 505, 512 (5th Cir. 2010) (quoting Meditrust Fin. Servs. Corp. v. Sterling Chems., Inc. , 168 F.3d 211, 214 (5th Cir. 1999) ). "A decision is arbitrary if it is made without a rational connection between the known facts and the decision." Id. (internal quotation marks omitted). Finally, we determine whether Cigna’s "decision to deny benefits" was "supported by substantial evidence." Id. (citing Ellis v. Liberty Life Assurance Co. of Bos. , 394 F.3d 262, 273 (5th Cir. 2004) ). We are not "confined to this test" and may "skip the first step if" it "can more readily determine that the decision was not an abuse of discretion." Holland , 576 F.3d at 246 n.2.

Cigna contends that "the district court failed to apply this court’s three-step abuse-of-discretion inquiry" correctly, arguing that "the district court got the first step wrong, and it failed to apply the second and third steps at all." Cigna is correct that the district court failed to consider whether Cigna’s interpretation was arbitrary or whether it was supported by substantial evidence. We perform this analysis here.

A. Legal Correctness

Each of the relevant plans at issue contains the following provision: "Payment for the following is specifically excluded from this plan: ... charges which you [the member] are not obligated to pay or for which you are not billed or for which you would not have been billed except that they were covered under this plan." Cigna has interpreted this language to mean that its "obligation to reimburse a plan member is ... limited to the expenses actually incurred by the member, meaning that the member is obligated to pay for the services. Thus, if the member has no obligation to pay, then Cigna has no obligation to pay."

Although the Fifth Circuit has previously suggested (without deciding) that this reading might be legally incorrect, N. Cypress , 781 F.3d at 196, here we "skip" this step. Holland , 576 F.3d at 246 n.2.

B. Abuse of Discretion

We agree with Cigna’s argument that, even if its construction of the plans’ exclusionary language was legally incorrect, its interpretation still fell within its broad discretion. The Supreme Court has explained that deference to the plan administrator’s decisions "serves the interest of...