Hoover v. Blue Cross and Blue Shield of Alabama, s. 87-7494

• Citation: 855 F.2d 1538
• Decision Date: 30 September 1988
• Docket Number: 87-7578,Nos. 87-7494,s. 87-7494
• Parties: James W. HOOVER, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF ALABAMA, an Alabama Corporation, Defendant, USX Corporation, A Delaware Corp., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1538

855 F.2d 1538

12 Fed.R.Serv.3d 197

James W. HOOVER, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF ALABAMA, an Alabama

Corporation, Defendant,

USX Corporation, A Delaware Corp., Defendant-Appellee.

Nos. 87-7494, 87-7578.

United States Court of Appeals,

Eleventh Circuit.

Sept. 30, 1988.

James L. North, J. Timothy Francis, William R. Lewis, Pate, Lewis & Lloyd, P.A., William B. Lloyd, Birmingham, Ala., for plaintiff-appellant.

William G. Somerville, Jr., Lange, Simpson, Robinson & Somerville, Lawrence B. Clark, Birmingham, Ala., for Blue Cross.

James T. Carney, USX Corp., Pittsburgh, Pa., for USX Corp. Appeals from the United States District Court for the Northern District of Alabama.

Before KRAVITCH and CLARK, Circuit Judges, and NICHOLS ^*, Senior Circuit Judge.

CLARK, Circuit Judge:

In this case the named plaintiff, James W. Hoover, brought a class action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1001 et seq. (ERISA). The complaint also contained some state law claims. On behalf of the class described in the complaint, Hoover sought recovery of benefits under the terms of certain employee medical insurance plans and damages for alleged breaches of fiduciary duty by the named defendants, Blue Cross and Blue Shield of Alabama, and USX Corporation (Hoover's employer). Before ruling on the question of class certification, the district court granted motions for summary judgment filed by both named defendants. Hoover has appealed the legal rulings on which the district court based its decision, as well as rulings which denied Hoover the opportunity to join additional defendants and assert additional claims. ¹

There is no dispute as to the essential facts. The focus of Hoover's complaint is the co-payment provision of the USX plan under which Hoover is insured:

If a condition of illness or injury requires you to be admitted for treatment as an inpatient to a Participating Hospital of a Blue Cross Plan, benefits will be provided ... for all covered services provided and billed by the hospital which are necessary to diagnose and/or treat your condition, ... except that you will be required to pay a Hospital Inpatient Deductible, ... and 20% of the hospital's charges in excess of the deductible.

Through a communication with Blue Cross, Hoover discovered that Blue Cross has contracts with certain "hospitals and other providers in Alabama, under which Blue Cross reimburses the providers on the basis of the lesser of the actual billed charges of the hospital and its 'audited' costs. In other words, Blue Cross gets a 'discount' from some providers." District Court Opinion, Record Vol. I, Tab 69 at 2. When Blue Cross reimburses hospitals with which it has such arrangements, the result is that an insured's co-payment for his or her hospitalization exceeds twenty percent of the total dollar cost (over the relevant deductible). Hoover contends that these arrangements contravene the language of the co-payment provision and that he and similarly situated insureds are entitled to share in the contractual discounts negotiated by Blue Cross by having their co-payments limited to twenty percent of the total amount paid to the relevant health care provider. The parties agree that resolution of these issues depends on a construction of the following language in the co-payment provision: "20% of the hospital's charges."

The parties also agree that the law governing this case is supplied by ERISA. ² ERISA provides that it "shall supersede any and all State laws insofar as they ... relate to any employee benefit plan described in section 1003(a)." 29 U.S.C. Sec. 1144(a). The Supreme Court has held that the civil enforcement mechanism provided by the Act, 29 U.S.C. Sec. 1132, provides the exclusive remedy for beneficiaries of a section 1003(a) benefit plan who believe that such a plan is not being administered in accordance with its terms or the provisions of the Act. See Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 1549 (1987); Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). ³ Accordingly, there was no legal basis for Hoover's state law claims.

Those charged with the administration of a section 1003(a) benefit plan are termed 'fiduciaries' under ERISA. The duties of a plan fiduciary are described in 29 U.S.C. Sec. 1104(a)(1), which provides, in relevant part, that

a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and--

(A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries ...

....

(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims ... [and]

....

(D) in accordance with the documents and instruments governing the plan....

Blue Cross conceded before the district court that it is a "fiduciary" subject to these provisions.

It is well established that the actions of plan fiduciaries or administrators must be sustained as a matter of law unless a plaintiff can prove that such actions are arbitrary or capricious. See, e.g., Sharron v. Amalgamated Insurance Agency Services, Inc., 704 F.2d 562, 565 (11th Cir.1983); Anderson v. Ciba-Geigy Corp., 759 F.2d 1518, 1522 (11th Cir.) (judicial review of fiduciary actions is "highly deferential"), cert. denied, 474 U.S. 995, 106 S.Ct. 410, 88 L.Ed.2d 360 (1985). This rule clearly applies to the interpretation and implementation of a covered plan by a plan fiduciary. See Griffis v. Delta Family-Care Disability, 723 F.2d 822, 824 (11th Cir.), cert. denied, 467 U.S. 1242, 104 S.Ct. 3514, 82 L.Ed.2d 823 (1984). In light of these principles, the parties agree that the defendants' interpretation and implementation of the co-payment clause contained in the USX plan is to be sustained as a matter of law unless the Hoover can demonstrate that the defendants' reading of the plan is arbitrary and capricious.

We have previously isolated two factors which are relevant in determining whether a plan administrator has arbitrarily and capriciously interpreted a covered plan: the uniformity of a plan administrator's construction of a disputed provision; and the reasonableness of the administrator's construction. See Harris v. Pullman Standard, Inc., 809 F.2d 1495, 1498 (11th Cir.1987). ⁴ It is also proper to consider a plan administrator's good faith in deciding whether his or her conduct is arbitrary and capricious. Id.

Hoover does not contend that Blue Cross's construction of the provision has been anything less than uniform. He concentrates instead on the reasonableness of the construction. In rejecting this and other arguments, the district court relied on the "uncontradicted affidavit" of a USX official, James Short, who was charged with drafting the plan under which Hoover is insured. According to Mr. Short, the plan

was written to provide that the employees would be responsible for 20% of the "charges" made by the hospital and that the employer would be responsible for the balance due the hospital as opposed to providing that the employer would be responsible for 80% of the hospital charges, or as opposed to providing that the employee would be responsible for 20% of the cost of hospitalization.

....

... [I]t would not be practical under a multi-state insurance plan to operate a co-payment system based on net cost (after discounts) when discount arrangements vary from plan to plan, and from hospital to hospital at certain plans. Discounts are even determined annually at certain plans with the amount of discount unknown at the time hospital bills are paid. This would have made it impossible for many hospitals to collect the 20% co-payments from employees which we considered desirable....

Hoover presented no evidence to rebut the content of Mr. Short's affidavit, and the district court found that the practice of obtaining discounts was reasonable as a matter of law. The court also concluded that

[t]here is no language in [the plan] legitimately susceptible to being interpreted as a promise to participants that USX, or any administrator or sub-administrator of the plan, will pay a fixed percentage of the actual or usual charges by a provider of medical services, without obtaining any discount. Any conclusion is without support in the only documentary evidence and constitutes no more than wishful thinking.

District Court Opinion, Record Vol. I, Tab 69 at 3.

Hoover contends that the defendants' interpretation of the plan is unreasonable because the words "cost" and "charge" are interchangeable and that a beneficiary familiar with the co-payment provision would fully expect that the twenty percent figure refers the actual, total amount of money a hospital would receive for its care of that beneficiary. Hoover's argument fails to acknowledge that, under ERISA, the subjective expectations of a plan beneficiary do not provide the proper measure of a plan administrator's interpretation of a disputed plan provision. If the co-payment provision is at least ambiguous, and reasonably susceptible to the interpretation given by the defendants, we must find, as a matter of law, this interpretation satisfies the arbitrary and capricious standard. See Cook v. Pension Plan for Salaried Employees, 801 F.2d 865, 871 (6th Cir.1986) (accepting plan administrator's reasoned explanation concerning application of ambiguous provision); Edwards v. Wilkes-Barre Publishing Co. Pension Trust, 757 F.2d 52, 57 (3d Cir.) (even where beneficiary's reading of plan language is plausible, plan fiduciary's adoption of reasonable alternative is conclusive), cert. denied, 474 U.S. 483, 106 S.Ct. 130, 88 L.Ed.2d 104 (1985).

As we noted above, the district court took a less than charitable view...