E TX Medical Ctr v. Heartland Exprs Inc ( 2002 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 01-40862
EAST TEXAS MEDICAL CENTER,
Plaintiff-Appellee,
versus
HEARTLAND EXPRESS, INC.; HEARTLAND EXPRESS, INC. EMPLOYEE
HEALTHCARE PLAN; THE EPOCH GROUP, LC,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Texas
(6:99-CV-633)
November 19, 2002
Before DAVIS, BARKSDALE, and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:*
Concerning the Employee Retirement Income Security Act, 29
U.S.C. §§ 1001, et seq., this appeal turns on whether, pursuant to
§ 1113(l), there was adequate notice of the reasons for the denial
of a benefits determination. Heartland Express, Inc., Heartland
Express, Inc. Employee Healthcare Plan, and The Epoch Group, LC,
appeal the district court’s holding them liable under both an abuse
of discretion and de novo standard of review for the plan
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
administrator’s denying coverage for expenses for treating Jessie
Pope’s injuries. Because the plan administrator failed to
adequately disclose the basis for its decision, we VACATE the
judgment and REMAND with instructions to REMAND to the plan
administrator.
I.
On 2 November 1996, while trying to pass another vehicle,
Jessie Pope collided with a Ford Escort containing five people.
All involved were seriously injured; two of the Escort’s occupants
died soon after the collision. The accident report noted: Pope
was driving her vehicle erratically, at high speed, and passing
other vehicles; she was in possession of a legal prescription for
pain; and a blood sample was obtained.
Pope was admitted to East Texas Medical Center (ETMC), to
which she assigned her rights and benefits under her insurance
policy. She was released three months later, with medical expenses
totaling more than $350,000.
At the time of the collision, Pope’s husband was employed by
Heartland Express. It provides (as plan sponsor and plan
administrator) an employee benefit plan — Heartland Express, Inc.
Employee Healthcare Plan — which is self-funded and covered by
ERISA. Pope is a plan beneficiary.
Heartland has contracted with The Epoch Group to serve as a
third-party claims supervisor. When a claim is filed, Epoch is
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authorized to pay or deny it, “based on the terms of the Plan
documents and upon making a reasonable effort to determine the
relevant law applicable to any situation”. If Epoch cannot make a
decision within those guidelines, it refers the claim to Heartland,
as plan administrator.
The plan document excludes coverage “for any expenses [the
employee or spouse] incur[s] ... as a result of having engaged in
any illegal activity other than misdemeanor traffic violations”
(illegal activity exclusion). The plan document does not define
“illegal activity”; it does contain a choice-of-law provision: “To
the extent federal law does not apply, any questions arising under
the Plan shall be determined under the laws of the State of Iowa”.
Under the terms of the plan document, Epoch attempted to
determine whether Pope’s medical expenses were covered. After
learning from a supplemental police report that Pope had been
charged with manslaughter (but had not then been indicted), with
the results of the blood test pending, Epoch advised Heartland on
11 March 1997 that it could not make a determination and referred
the claim to Heartland. The same day, Heartland informed Epoch:
“it remains our corporate position that the medical expenses claim
for ... Pope should be denied”, citing the illegal activity
exclusion. By letter dated 31 March 1997, Epoch informed Pope that
Heartland denied the claim “based on information obtained through
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the police report and other sources” and cited the illegal activity
exclusion. Epoch notified ETMC by separate letter.
Pope retained an attorney and appealed the decision on 26
April 1997. As part of that administrative appeal, she requested
all documentation and information used to make the determination
and an appearance before the Plan trustees. ETMC also appealed the
decision, requesting similar information and claiming Heartland’s
denial notice failed to provide the specific reason for the denial,
as required by 29 C.F.R. § 2560.503-1(f).
On 27 May, approximately a month after Pope began her appeal,
the Texas Department of Public Safety crime lab submitted its
report; it determined Pope’s blood alcohol content was negative.
However, her blood test was positive for Codeine (.36 milligrams
per liter), Butalbital (10 milligrams per liter), Meprobamate (52
milligrams per liter), and Carisoprodol (less than .4 milligrams
per liter).
Approximately a month later, on 25 June, Pope was indicted on
two counts of intoxication manslaughter. On 18 July, Epoch
informed Pope the Plan trustees denied her appeal “[a]fter
reviewing all materials, including the 2 indictments returned on
June 25, 1997” and, again, citing the illegal activity exclusion.
ETMC contends its appeal was not denied until a 9 March 1998
letter from Heartland’s attorney informed ETMC that Heartland’s
information indicated Pope was driving under the influence of
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alcohol and was indicted for intoxication manslaughter, which
excluded her from eligibility for benefits. The plan document
requires an appeal to be decided within 60 days. If there is a
delay in the trustees’ decision, the plan document requires the
trustees to notify the claimant of the delay. Heartland contends:
the denial of Pope’s appeal is the only relevant appeal; and the 9
March letter was not a denial of an appeal, but merely pre-
litigation posturing by its attorneys.
In late 1999, ETMC filed this action, with claims under ERISA
(benefits due under the plan, breach of fiduciary duty, and failure
to provide information) and state law. On 13 March 2000, Pope
pleaded guilty to two counts of negligent homicide (a felony) and
received a probated sentence of two years imprisonment.
At the 5 March 2001 bench trial, Defendants called a witness
to admit the administrative record; ETMC, a nurse and a
representative of its business office to admit evidence of Pope’s
injuries and her bill. The district court, in a 23-page opinion,
reviewed the Plan trustees’ decision under both de novo and abuse
of discretion standards of review and made extensive findings of
fact and conclusions of law.
The district court determined: Pope’s injuries did not result
from illegal activity under either Iowa or Texas law;
alternatively, the trustees’ denial of the claim was arbitrary and
capricious. The court held all Defendants — the Plan, Heartland,
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and Epoch — liable for benefits due; made no award on ETMC’s ERISA
claims of breach of fiduciary duty or failure to provide
information; and denied its state law claims.
II.
Appellants-Defendants contend the district court erred in
reviewing the trustees’ decision de novo and instead should have
reviewed for abuse of discretion. They contend: the
administrative record supports the trustees’ factual determination
that Pope’s injuries resulted from illegal activity; and the
trustees’ interpretation is correct under both Iowa and Texas law.
Finally, two of the Appellants-Defendants, Heartland and Epoch,
contend the district court erred in holding them liable for
benefits under ERISA.
ETMC counters that de novo review was appropriate because of
the plan document language and the trustees’ conduct. Also, as it
did in district court, it asserts Heartland and the Plan trustees
failed to adequately disclose the basis for the decision, as
required by law. It maintains that, even under an abuse of
discretion standard, the district court was correct because: no
evidence shows Pope was intoxicated; the denial was improper under
both Iowa and Texas law; and Heartland’s conflict of interest
lessens the deference to be given the decision.
We agree with ETMC that the Plan’s initial denial failed to
sufficiently comply with ERISA’s notice requirements. ERISA
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provides certain minimum requirements that must be met when a plan
administrator denies a benefits claim. See Schadler v. Anthem Life
Ins. Co., 147 F.3d 388, 393 (5th Cir. 1998). Section 1133 of
ERISA, in part, requires every employee benefit plan to “provide
adequate notice in writing to any participant or beneficiary whose
claim for benefits under the plan has been denied, setting forth
the specific reasons for such denial, written in a manner
calculated to be understood by the participant”. 29 U.S.C. §
1133(1). The then-applicable Department of Labor regulations
concerning this section provide in pertinent part:
(f) Content of notice. A plan administrator
... shall provide to every claimant who is
denied a claim for benefits written notice
setting forth in a manner calculated to be
understood by the claimant:
(1) The specific reason or reasons for the
denial; [and]
(2) Specific reference to pertinent plan
provisions on which the denial is based[.]
29 C.F.R. § 2560.503-1(f)(1997) (emphasis added).
These requirements are intended to assist the claimant prepare
for further administrative review, as well as any subsequent
proceedings in federal courts. See Schadler, 147 F.3d at 394(quoting Matuszak v. Torrington Co., 927 F.2d 320, 323 (7th Cir.
1991)). The denial must include specific reasons for the decision;
“[b]aldfaced conclusions do not satisfy this requirement”. Id.(emphasis added; internal quotation marks and citations omitted).
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And, as discussed, the explanation requirement is intended to
ensure the beneficiary receives “meaningful review of that denial”.
Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 689 (7th Cir. 1992)
(emphasis added).
In Schadler, we remanded the case to the administrator to make
an initial determination because it failed to provide notice
consistent with 29 U.S.C. § 1133(1) and 29 C.F.R. § 2560.503-1(f).
147 F.3d at 399. We concluded: ERISA requires the district court
to review the plan administrator’s fact-finding and interpretation
of the benefit plan; but, for it to do so, the administrator must
first make factual findings and make them known to the beneficiary.
Id. at 397-98.
Heartland’s denial, by a letter from Epoch, merely stated:
“based on information obtained through the police report and other
sources, charges have been determined to be ineligible under the
Plan”. While Heartland complied with 29 C.F.R. § 2560.503-1(f)(2)
(requiring citation of the relevant plan provision), it failed: to
provide any facts that warranted application of the exclusion; and
to indicate how a police report filed in Texas met the illegal
activity exclusion as determined by Iowa law (the law applicable
under the plan document). In both the initial denial and the
denial of Pope’s appeal, Heartland and the trustees failed to
explain what activity by Pope was illegal. Additionally, the
absence of any explanation of its interpretation of the exclusion
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and the vague reference to “other sources” cannot be an explanation
“calculated to be understood by the claimant”. 29 C.F.R. §
2560.503-1(f).
Because of this shortcoming, the denial failed to comply with
§ 2560.503-1(f) and, more importantly, 29 U.S.C. § 1133(l).
Consequently, this matter should be remanded to the plan
administrator.
Lending further support to our conclusion that this matter
should be remanded is the existence of evidence not before
Heartland when the denial decision was made. After Pope’s appeal
to the Plan trustees was denied, she pleaded guilty to negligent
homicide. As a result of this subsequent development, one or both
of the parties should have requested a remand in the light of this
new evidence. See, e.g., Barhan v. Ry-Ron, Inc., 121 F.3d 198, 202
n.5 (5th Cir. 1997); Moller v. El Campo Aluminum Co., 97 F.3d 85,
88-89 (5th Cir. 1996); Miller v. United Welfare Fund, 72 F.3d 1066,
1071-72 (2d Cir. 1995) (remand appropriate, unless it would be a
useless formality).
III.
For the foregoing reasons, the judgment is VACATED, and this
case is REMANDED to the district court with instructions to REMAND
to the plan administrator.
Needless to say, the remand to the plan administrator
will begin anew the administrative review of this matter; and, if
the claim is denied, this may result in an action being again filed
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in district court. Should that happen, the district court will, of
course, write on a clean slate, based upon the issues presented and
the underlying claim-process. Obviously, there is no way now to
know what those issues might be.
It goes without saying that, in remanding to the plan
administrator, we vacate not only the judgment but also the
district court’s underlying findings of fact and conclusions of
law. Such vacated items include, but are not limited to, the
district court’s rulings challenged in this appeal regarding the
proper standard of review for the claim-denial, the valid bases for
claim-denial, and the liability of Heartland and Epoch, with the
Plan, for benefits under ERISA.
Again, should a new action be filed, the district court will
then address the issues then presented. Because we are vacating
the judgment and, concomitantly, the underlying findings and
conclusions by the district court, such findings and conclusions do
not constitute the law of the case. Likewise, we express no
opinion about the challenges now presented on appeal, including
those concerning the applicable standard of review, proper bases
for claim-denial, and joint liability, other than to observe that
those challenges have considerable force. In any event, the new
administrative process on remand will result in a new claim-
decision which may possibly become the subject of a new action in
district court. Should that be the case, we know each issue then
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presented will receive new and thorough analysis by the district
court.
VACATED and REMANDED
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