Vaught v. Scottsdale Healthcare Corp. Health Plan

• Decision Date: 29 September 2008
• Docket Number: No. 06-15507.,06-15507.
• Citation: 546 F.3d 620
• Parties: Raymond VAUGHT, Plaintiff-Appellant, v. SCOTTSDALE HEALTHCARE CORPORATION HEALTH PLAN, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

546 F.3d 620

Raymond VAUGHT, Plaintiff-Appellant, v. SCOTTSDALE HEALTHCARE CORPORATION HEALTH PLAN, Defendant-Appellee.

No. 06-15507.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 15, 2008.

Filed September 29, 2008.

Randolph G. Bachrach, Phoenix, AZ, for the plaintiff-appellant.

Lawrence J. Rosenfeld, Greenberg Traurig, LLP, Phoenix, AZ, for the defendant-appellee.

Appeal from the United States District Court for the District of Arizona; David G. Campbell, District Judge, Presiding. D.C. No. CV-05-00718-DGC.

Before: W. FLETCHER, CARLOS T. BEA, and SANDRA S. IKUTA, Circuit Judges.

Opinion by Judge IKUTA; Partial Concurrence and Partial Dissent by Judge BEA.

IKUTA, Circuit Judge:

Plaintiff-appellant Raymond Vaught appeals the district court's grant of summary judgment in favor of defendant-appellee Scottsdale Healthcare Corp. Health Plan (the Plan), Vaught's health plan. The Plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA). After denying Vaught's claim for benefits, the Plan declined to grant Vaught's requests for internal review of that denial. Vaught then challenged the Plan's denial of benefits in district court based on a new theory. Because Vaught had not previously raised this theory to the Plan in his requests for internal review, the district court held that Vaught had failed to exhaust his administrative remedies. The district court granted the Plan's motion for summary judgment and dismissed Vaught's ERISA claim.

On appeal, we must consider whether Vaught effectively exhausted his administrative remedies, and, if not, whether he was excused from such exhaustion. We must also consider whether ERISA claimants are subject to an issue-exhaustion requirement. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part, reverse in part, and remand for further proceedings.

I

Raymond Vaught was injured when his motorcycle collided with an automobile on July 26, 2003. The police report from the accident stated that, "pending the outcome of the blood results from the Scottsdale Police Laboratory, Vaught will be charged via long form for driving under the influence of alcohol." The results from the blood tests (taken at the hospital after the accident) revealed that Vaught's blood alcohol content was .2618 percent, which is more than three times Arizona's legal limit for an individual operating a motor vehicle.

Vaught sought reimbursement of his accident-related medical costs from the Plan, a health plan established by Vaught's wife's employer, Scottsdale Health Care Corporation. This health plan is deemed to be an "employee benefit plan," as defined in ERISA, 29 U.S.C. § 1002(3). As such, it is governed by ERISA, which sets minimum substantive and procedural requirements for employee benefit plans. Id. § 1003(a). Under ERISA, the Plan is a separate legal entity that can sue and be sued. Id. § 1132(d)(1). A private company that elects to establish such a plan is referred to as the "plan sponsor." Id. § 1002(16)(B). The fiduciary responsible for administering such a plan is referred to as the plan "administrator." Id. § 1002(16)(A). Here, Scottsdale Health Care Corporation is both the plan sponsor and the plan administrator. Scottsdale Health Care Corporation retained Professional Benefit Services (PBS) to serve as the claims administrator for the Plan.

Kathy Vaught, Raymond Vaught's wife and primary beneficiary of the Plan, received an explanation of benefits (EOB) from PBS on August 15, 2003. The EOB denied Raymond Vaught's claim, stating: "INJURY DETAILS NEEDED: MUST INCLUDE HOW, WHEN & WHERE INJURY OCCURRED." In response, Kathy Vaught sent the claims administrator a copy of the police report indicating that her husband would be charged for driving under the influence of alcohol. A second EOB followed, again denying Raymond Vaught's claim and directing him to "REFER TO THE BENEFITS BOOKLET UNDER EXCLUSIONS AND WHAT THE PLAN DOES NOT COVER REGARDING MOTOR VEHICLE RELATED CHARGES."

The reverse side of this EOB stated that the EOB "is an initial determination of your claim." It informed the claimant: you "may request a copy of the documents governing the Plan and any internal rule, guideline or protocol used in the determination of your claim." In a section entitled "Review Process," the EOB noted a claimant's right to appeal any determination, and described the appeal process:

If your claim is denied in whole or in part or if you disagree with the decision, you have a right to appeal the claim determination.

This Plan maintains a two-level appeals process for post-service claims. You have 180 days from the date of this initial claim determination to file an appeal to the Claims Administrator. You can review documents relevant to the claim and submit written comments and evidence supporting your claim. You may appoint a provider or other person as your authorized representative by filing a written authorization with the Claims Administrator. Your appeal must be sent in writing to the Administrative Office and clearly explain that you are appealing a claim denial and the reason why you think the Claims Administrator should reconsider your claim.

If still dissatisfied with the initial appeal level determination you have 90 calendar days from receipt of the first level determination to request a second level appeal review by writing to the Plan Administrator. Following an adverse benefit determination after both levels of review, you have a right to bring a civil action under ERISA Section 502(a).

During the appeal process, the Claims Administrator and the Plan Administrator will conduct a full and fair review, consider all the evidence and exercise their fiduciary discretion to interpret the Plan and decide the appeal. They will consult with any appropriate health care professional in deciding an appeal involving medical judgment. The decision on review of your claim will state the specific reason for the determination, reference the specific Plan provision upon which the decision was based and provide you with the right to request copies of all documents relevant to the review.

Vaught sent a letter to the Claims Administrator on January 22, 2004, stating that "[a]s per the plan agreement I am going to file an appeal within the 180 day time frame from the receipt of your claim denial," and designating the Rocco Law Firm as his representative for the appeal. The letter was stamped "RECEIVED" by the Claims Administrator on January 26, 2004.

On February 19, 2004, Joseph Rocco, an attorney with the Rocco Law Firm, sent a letter to the Claims Administrator explaining that his office represented the Vaughts, and that on their behalf (and pursuant to the Vaughts' January 22nd letter) his office was appealing the adverse determination of benefits under the plan. The letter listed seven grounds for the appeal:

1. The specific reason or reasons for the adverse benefit determination have not been provided;

2. References to the specific plan provisions on which the adverse benefit determination is based have not been provided;

3. No description of additional material or information necessary to complete the claim has been requested;

4. No description of the plan's appeal procedures, including applicable time limits, plus a statement of the right to bring suit under § 502 of ERISA with respect to any adverse benefit determination has been provided;

5. No statement that the Vaughts are entitled to receive on request and free of charge, reasonable access to and copies of all documents, records and other information relevant to the claim has been provided;

6. No description of adverse benefit determination based upon an internal rule, guideline, protocol or similar criteria, if so based, has been provided;

7. The sole description provided, "AM refer to the benefits booklet under exclusions and what the plan does not recover [sic] regarding motor vehicle related charges" is vague and ambiguous, fails to meet the requirements for a claim denial as outlined at page 37 of the "Flex Choice — Medical Benefit Summary Plan Description."

The letter was stamped "RECEIVED" by the Claims Administrator on February 24, 2004.

On March 16, 2004, Mitchell Melamed replied to Rocco regarding the February letter to the Claims Administrator.¹ In the letter, Melamed acknowledged receipt of Rocco's letter "requesting an appeal" of the adverse benefits determination, and explained that Vaught's claim was denied because the Plan does not cover "expenses incurred related to `driving under the influence of alcohol or drugs.'" Apparently unaware that the Claims Administrator had already received Vaught's written authorization designating Rocco as his representative, Melamed asked Rocco to provide such authorization, adding "[i]f you have already forwarded that written authorization to the Plan, please forward a copy for my file." In response to Rocco's letter, Melamed stated that "[t]he specific reason for denial of coverage is driving under the influence of alcohol or drugs, your client having an indicated blood alcohol level of 0.261." Melamed further advised that "[n]o additional material or information was necessary to complete the claim." Finally, Melamed stated that, "based on this apparently being the first formal notification, I would recommend that you now have 180 days within which to submit your appeal as set forth on page 37 of the Summary Plan Description."

On March 29, 2004, Rocco responded to Melamed by raising additional questions, and requesting a list of all documents reviewed by the Claims Administrator in order to reach its determination to deny coverage to Vaught because of his blood alcohol level, as well as copies of "any other documents or testimony of whatsoever kind" on which the Claims Administrator intended to rely. Instead of including a copy of Vaught's signed authorization, as Melamed requested in the March 16 letter, Rocco...