Pitman v. Blue Cross & Blue Shield of OK

• Decision Date: 07 July 2000
• Docket Number: Nos. 98-5034,s. 98-5034
• Citation: 217 F.3d 1291
• Parties: (10th Cir. 2000) SHARON PITMAN, wife of Gail Pitman, Deceased, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF OKLAHOMA, individually and as Trade Name of GROUP HEALTH INSURANCE OF OKLAHOMA, INC., Defendant-Appellant. & 99-5197
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1291

217 F.3d 1291 (10th Cir. 2000)

SHARON PITMAN, wife of Gail Pitman, Deceased, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF OKLAHOMA, individually and as Trade Name of GROUP HEALTH INSURANCE OF OKLAHOMA, INC., Defendant-Appellant.

Nos. 98-5034 & 99-5197

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

July 7, 2000

Appeal from the United States District Court for the Northern District of Oklahoma (D.C. No. 92-CV-451-E)(D.C. No. 92-CV-451-E) (N.D. Okla.) [Copyrighted Material Omitted]

Submitted on the briefs:^*

Donald M. Bingham and Karen E. Langdon of Riggs, Abney, Neal, Turpen, Orbison & Lewis, Tulsa, Oklahoma, and Mark E. Schmidtke, of Ebenstein & Schmidtke Consultants, Valparaiso, Indiana, for Defendant-Appellant.

Sandy S. McMath of Sandy S. McMath & Associates, P.A., Little Rock, Arkansas, for Plaintiff-Appellee.

Before BALDOCK, PORFILIO, and EBEL, Circuit Judges.

ORDER

EBEL, Circuit Judge.

This matter is before the court on appellant's petition for rehearing filed June 5, 2000. The petition for rehearing is granted for the sole purpose of deleting footnote eight. The petition is denied in all other respects. A revised opinion is attached to this order.

This appeal arises out of a dispute over the provisions of an employee welfare benefits plan. Insurer Blue Cross & Blue Shield of Oklahoma ("Blue Cross") appeals the district court's grant of summary judgment in favor of one of its policyholders, Gail Pitman. Pitman claims that Blue Cross, as both the insurer and administrator of a health benefits plan, breached its duty under the plan to pay for high-dose chemotherapy with autologous bone marrow transplant, ("HDC/ABMT"), a procedure used to treat a form of cancer, multiple myeloma. Blue Cross contends that it has no obligation to pay for the procedure because the treatment is excluded under an amendment to Pitman's policy. We hold that Blue Cross operated under a conflict of interest; that the policy unambiguously excluded the autologous bone marrow transplant; and that Blue Cross did not carry its burden of demonstrating that high-dose chemotherapy fell within an exclusionary clause. We exercise jurisdiction under 28 U.S.C. 1291 and affirm in part and reverse in part.

BACKGROUND

The parties and this controversy were before the Court in a prior appeal, and the facts are set out fully in the resulting opinion. See Pitman v. Blue Cross & Blue Shield of Oklahoma, 24 F.3d 118 (10th Cir. 1994) ("Pitman I"). We include, therefore, only those facts necessary to resolve the current appeal.

Gail Pitman, a beneficiary under a medical insurance plan that Blue Cross both administers and insures, was diagnosed with multiple myeloma in August 1990. To treat the disease, Mr. Pitman began a course of standard-dose chemotherapy, the cost of which was covered under the Blue Cross plan. The plan explicitly lists chemotherapy as a covered service. In August 1991, after tests revealed that the cancer was in remission, Mr. Pitman's doctor recommended a treatment of high dose chemotherapy and autologous bone marrow transplant ("HDC/ABMT"). On January 28, 1992, Mr. Pitman telephoned Barbara Johnson, a benefits-verification representative for Blue Cross, to inquire about coverage under the plan for HDC/ABMT. Ms. Johnson denied coverage on the basis of a plan amendment which became effective on July 1, 1991.¹ The amendment provides:

6) Preauthorization will be considered for an autologous bone marrow transplant (in which the patient is the donor), with high-dose chemotherapy or radiation, only for the following conditions:

a) Stage III or IV Hodgkin's disease which has come back after an initial complete remission, with no bone marrow involvement;

b) Stage III or IV intermediate or high-grade non-Hodgkin's lymphoma which has come back after an initial complete remission, with no bone marrow involvement;

c) Stage III or IV neuroblastoma, without bone marrow involvement;

d) Acute lymphocytic or non-lymphocytic leukemia which has come back after an initial complete remission.

7) Preauthorization will be denied, and Benefits will not be provided, for autologous bone marrow transplants for any other cases, such as:

. . .

e) multiple myeloma

(italics in original). After being denied coverage, Pitman filed suit in the district court in May 1992 under 29 U.S.C. 1132(e)(1), seeking a preliminary injunction to bar Blue Cross from denying the HDC/ABMT treatment and a declaratory judgment that the policy entitled him to "immediate certification for the benefit of bone marrow transplantation." The district court granted summary judgment in favor of Blue Cross. Pitman appealed that decision to this Court. After construing the suit as one falling under 29 U.S.C. 1132(a)(1)(B),² we reversed and remanded for further proceedings.³ See Pitman I, 24 F.3d at 119. Specifically, this Court determined that the district court "erred by not considering the insurer's apparent conflict of interest in determining whether deference should be given to the insurer's interpretation of coverage." Id.

On remand, the district court heard further evidence presented by both parties. On March 1, 1995, the district court granted summary judgment in favor of Pitman. Following Blue Cross' motion to reconsider the March 1995 order, the court held an evidentiary hearing on August 10, 1995. At this hearing, Blue Cross presented evidence to the court that it is a "not-for-profit mutual company owned by the members who participate in the company." In addition, Blue Cross testified that the Oklahoma Insurance Commission requires Blue Cross to keep a minimum amount of reserves, which approximates two months of claims expense and administrative expense. Furthermore, when premiums are received from its members, those dollars are first applied to the payment of claims and then to overhead, which is also regulated by the Oklahoma Insurance Commission. If there is a shortfall, then the company dips into the reserves; if there is a surplus, that money goes into the reserves account. If for some reason the income greatly exceeds the outflow, the company would be required to lower its rates or increase the benefits to the members. If the company had large surpluses one year, it would not be able to pay big bonuses to its executives because the Department of Insurance regulates administrative expenses and requires any excess to go into a reserves account.

On October 11, 1996 the district court entered findings of fact and conclusions of law, concluding that Blue Cross had a conflict of interest, and that it had denied the requested benefits arbitrarily and capriciously. Consequently, the court found that the amendment to the plan that excluded a bone marrow transplant for multiple myeloma was void. Blue Cross now appeals that decision and the attorney's fee award granted to Pitman by the district court in an August 1999 order.

DISCUSSION

I. Standard of Review

Summary judgment orders are reviewed de novo, using the same standards as applied by the district court. See Kimber v. Thiokol Corp., 196 F.3d 1092, 1097 (10th Cir. 1999). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Jones v. Kodak Med. Assistance Plan, 169 F.3d 1287, 1291 (10th Cir. 1999).

In addition to the standards we use to evaluate the district court's order, we must also address the appropriate standard with which the court should review Blue Cross's denial of benefits under the ERISA plan it administers. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 108-15 (1989). "Although ERISA gives a plan beneficiary the right to judicial review of benefit denials, the statute did not establish the standard of review for such decisions." Chambers v. Family Health Plan Corp., 100 F.3d 818, 824-25 (10th Cir. 1996). In Firestone, the Supreme Court held that "a denial of benefits challenged under 1132(a)(1)(B) is to be reviewed 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." Firestone, 489 U.S. at 115.

In this case, the plan states that "[t]he Board of Trustees of Blue Cross and Blue Shield of Oklahoma is authorized to determine, and in its discretion, to alter the Benefits provided by this Contract." Thus, the plan expressly gives Blue Cross as plan administrator the discretion to determine whether to deny a claimant insurance benefits under the plan. Therefore, because the plan grants Blue Cross discretion, "[a] court reviewing a challenge to a denial of employee benefits . . . applies an 'arbitrary and capricious' standard to a plan administrator's actions." Charter Canyon Treatment Ctr. v. Pool Co., 153 F.3d 1132, 1135 (10th Cir. 1998).

However, if a plan administrator is operating under a conflict of interest, "the court may weigh that conflict as a factor in determining whether the plan administrator's actions were arbitrary and capricious." Id. "[T]he Tenth Circuit has adopted a sliding scale, decreasing the level of deference in proportion to the severity of the conflict." Jones, 169 F.3d at 1291. The conflict, then, is weighed as one factor in determining whether the plan administrator's decision was arbitrary and capricious. See Firestone, 489 U.S. at 115; Jones, 169 F.3d at 1291.

Pitman contends that Blue Cross was operating under a conflict of interest because it was both the plan administrator and the insurer. Blue Cross, however, asserts that there was no conflict of interest simply because it was both the insurer and the administrator, and even if such a conflict did exist, it did not impact the decision of the Customer Claims Representative, Barbara Johnson. Thus,...