Joel S. v. Cigna

• Decision Date: 03 December 2018
• Docket Number: Case No. 1:16-cv-143-CW
• Citation: 356 F.Supp.3d 1305
• Parties: JOEL S. et al., Plaintiffs, v. CIGNA et al., Defendants.
• Court: U.S. District Court — District of Utah

356 F.Supp.3d 1305

JOEL S. et al., Plaintiffs,

v.CIGNA et al., Defendants.

Case No. 1:16-cv-143-CW

United States District Court, D. Utah.

Signed December 3, 2018

Filed December 4, 2018

Brian S. King, Salt Lake City, UT, for Plaintiffs.

Jack M. Englert, Jr., Pro Hac Vice, Holland & Hart LLP, Greenwood Village, CO, James L. Barnett, Holland & Hart LLP, Salt Lake City, UT, for Defendants.

MEMORANDUM DECISION & ORDER

Clark Waddoups, United States District Judge

Before the court is Plaintiffs the S Family's Motion for Summary Judgment of this ERISA action. (ECF No. 27.) The S Family contends that Cigna improperly denied coverage for two different periods of S.S.'s psychiatric treatment. Defendants respond that this court owes deference to Cigna and that the denials were within Cigna's discretion. The court heard oral argument on the motion on May 24, 2018. Having fully considered the briefing, hearing oral argument, and being otherwise fully informed, the court DENIES the S Family's Motion for the reasons stated herein.

BACKGROUND ¹

This action involves Cigna's denial of insurance coverage for the psychiatric treatment of S.S., a minor. During the relevant time, New Orleans-Baton Rouge Steamship Pilots Association Plan ("the Plan"), a self-funded plan that Cigna administered, insured S.S.'s father, Joel S., and his dependents. (Motion 3, ECF No. 27.) The Plan provides coverage for healthcare services deemed "medically necessary," as defined in the Plan. (Id. ) Cigna has discretion to administer the Plan, including making coverage decisions. (Id. ) The Plan also provides for claimants to seek independent review from a Plan designated Independent Review Organization (IRO) if Cigna denies both the claim and the appeal. (Sealed Record 42.)

At the age of sixteen, S.S.'s outpatient treating physician referred her to Menninger Clinic for acute inpatient psychiatric hospitalization after a suicide attempt. (Id. at 9.) She had previously been in outpatient therapy for depression, anxiety, and ADHD. (Id. at 7–8.) S.S. was treated at Menninger from October 2, 2013 to November 1, 2013. (Id. at 9, 12.) She then went to Solstice Residential Treatment Facility, where she received residential treatment from November 5, 2013 to May 30, 2014. (Id. at 11.) Cigna covered S.S.'s treatment at Menninger from October 2 to October 10, but it denied coverage for the remainder of her treatment, including her entire stay at Solstice, as not medically necessary. (Id. at 319 & 724.) S.S., through her parents, unsuccessfully internally appealed Cigna's denials and sought review from an independent reviewer. (Motion 12–18, ECF No. 27; Sealed Record 278 & 682.) The independent reviewer, MCMC, concluded the treatment was not medically necessary, so Cigna again denied coverage. (Motion 17–18, ECF No. 27.)

The S Family now seeks this court's review. It first asserts that the court should review the claim denials de novo because Cigna violated its fiduciary obligations under the Plan by failing to follow claim procedures set out in the ERISA regulations. (Motion 18–27, ECF No. 27.) It next contends that Cigna improperly decided its claims and that the Plan entitles it to compensation for the entirety of S.S.'s time at Menninger and Solstice. (Id. 28–39.) Finally, the S Family argues it is entitled to recover prejudgment interest on the amount of recovery and to attorney fees and costs associated with this litigation. (Id. 39–45.)

ANALYSIS

I. Standard of Review

Relying on trust principles, the Supreme Court announced in Firestone Tire and Rubber Co. v. Bruch , 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that the court in an ERISA action is to review the denial of benefits "under a de novo standard, unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan," id. at 115, 109 S.Ct. 948. "If the plan does explicitly confer discretionary authority on an administrator with so-called Firestone language," the court "must review benefit determinations under an ‘arbitrary and capricious’ standard." Geddes v. United Staffing All. Emp. Med. Plan, U.S.A. , 469 F.3d 919, 923 (10th Cir. 2006).

Here, the Plan confers "discretionary authority" on Cigna, acting as the Plan Administrator, "to determine eligibility and to interpret the Plan." (Sealed Record 6.) Cigna has "the discretionary authority to determine whether a claim should be paid or denied on appeal and according to the Plan provisions." (Id. ) And the parties agree that, given this discretion, ordinarily the court would conduct an arbitrary and capricious review, asking whether the coverage denials are supported by substantial evidence.² Gaither v. Aetna Life Ins. Co. , 394 F.3d 792, 801 (10th Cir. 2004) (citing Firestone , 489 U.S. at 115, 109 S.Ct. 948 ).

But the S Family argues that Cigna's review process was marked by various procedural irregularities and, relying upon the Second Circuit Court of Appeals analysis in Halo v. Yale Health Plan , 819 F.3d 42 (2d Cir. 2016), that the appropriate standard of review is therefore de novo. In Halo , the Second Circuit concluded that under established trust principles a trustee is not entitled to deference if it fails to uphold the applicable standard of care, which the Court determined was defined by the ERISA regulations set out in 29 C.F.R. § 250.503-1 as amended in 2002. 819 F.3d at 52. Therefore, the court looked to the 2002 ERISA regulations and the accompanying Preamble, which states that de novo review applies if the Plan administrator violates the regulations no matter how minor or substantial the violation, and concluded that because § 250.503-1(l) ("Subsection (l)") of the regulations is ambiguous, the Preamble's interpretation of Subsection (l) merits Auer deference. Id. at 53–54. In light of the Preamble, the Halo court concluded that failure to comply with any part of the regulations triggers de novo review, except when the administrator can show that the irregularities were inadvertent and harmless. Id. at 53–54, 58.

The Tenth Circuit addressed the impact of procedural irregularities on judicial review in Gilbertson v. Allied Signal Inc. , 328 F.3d 625 (10th Cir. 2003). In Gilbertson , the Tenth Circuit applied the 1977 version of the ERISA regulations and concluded that, when a plan administrator fails to exercise its discretion by, for example, failing to render a timely decision, the claim is deemed denied and the district court owes no deference to the administrator. Id. at 630–31. But the court went on to explain that a plan administrator may be spared this rigorous standard if it substantially complied with the regulations. Id. at 634–35. The Tenth Circuit has not decided whether the promulgation of the 2002 ERISA regulations affects its substantial compliance analysis under Gilbertson .³ Instead, the Court has repeatedly reserved that issue. See, e.g., Hancock v. Metro. Life Ins. , 590 F.3d 1141, 1152 n.3 (10th Cir. 2009) ("Because Ms. Hancock has failed to show any noncompliance, we need not consider whether substantial compliance is sufficient under the January 2002 revisions of ERISA."); LaAsmar v. Phelps Dodge Corp. Life, Accidental Death & Dismemberment and Dependent Life Ins. , 605 F.3d 789, 800 (10th Cir. 2010) ("We need not decide whether that ‘substantial compliance’ doctrine still applies to ... 29 C.F.R. § 2560.503-1, because even assuming it does apply, MetLife did not substantially comply here with ERISA's requirement of a timely resolution of an administrative appeal."). Therefore, this court must determine the effect a procedural irregularity should have under the new regulations, including whether to follow Halo . To decide this, the court first looks to the regulations.

In the 2002 ERISA regulations, which govern this case, the Department of Labor passed the following rule:

(l) Failure to establish and follow reasonable claims procedures. In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

29 C.F.R. § 250.503-1(l). Although Subsection (l) is silent on the issue of standard of review, the Preamble explains that "[t]he Department's intentions in including this provision in the proposal were to clarify that the procedural minimums of the regulation are essential to procedural fairness and that a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference." Employee Retirement Income Security Act of 1974; Rules and Regulations for Administration and Enforcement; Claims Procedure, 65 Fed. Reg. 70,246, 70,255 (November 21, 2000) (codified at 29 C.F.R. § 250.503-1). Although many commenters advocated "a standard of good faith compliance as the measure for requiring administrative exhaustion, ... the Department ... determined to retain" the provision as proposed. Id. at 70,255 –56.

The Halo court concluded that the Department of Labor's interpretation set forth in the Preamble merits deference under Auer v. Robbins , 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), because it concluded that the language of Subsection (l) is ambiguous. Halo , 819 F.3d at 53. The court acknowledged that "Subsection (l ) ... says nothing about standards of review;" nevertheless, it concluded an ambiguity exists because Subsection (l) "could be reasonably read as incorporating the logic of Firestone and its progeny that a claim is subject to de novo review if it is ‘deemed denied,’ the effective equivalent of being deemed exhausted under the 2000 regulation." Id. at 54. Halo further concluded that the...