David Tillery v. Hoffman Enclosures ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 00-3805
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David Tillery and Kathy Tillery, *
*
Plaintiffs-Appellants, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Hoffman Enclosures, Inc., *
a Minnesota corporation, *
*
Defendant-Appellees. *
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Submitted: October 18, 2001
Filed: February 21, 2002 (Corrected 2/26/02)
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Before MURPHY, BEAM and BYE, Circuit Judges.
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BYE, Circuit Judge.
David Tillery and his mother, Kathy Tillery, appeal the district court's1 grant
of summary judgment upholding a plan administrator's denial of medical benefits to
David under Kathy's employer's self-funded employee welfare benefit plan. We
affirm.
1
The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
I.
On August 10, 1994, sixteen-year-old David Tillery was seriously injured in
a motor vehicle accident. The accident left him a paraplegic and necessitated removal
of 30 feet of intestine and resection of his bowel. In 1995, doctors referred him to the
University of Minnesota where he was accepted as a candidate for experimental
bowel transplant surgery. A successful bowel transplant was performed at the
University of Minnesota in June, 1996.
At the time of the accident, Kathy Tillery was employed by Hoffman
Enclosures, Inc. Hoffman provided an employee welfare benefit plan (Plan),
governed by the Employee Retirement Income Security Act (ERISA) 29 U.S.C. §§
1001-1461, under which David received medical benefits. Hoffman acted as plan
administrator, and Medica, Inc., was the claims administrator. Hoffman had authority
to decide all questions of eligibility, to make claims decisions, and to review appeals.
The Plan specifically granted the plan administrator discretion with respect to the
administration, operation and interpretation of the Plan. Medica had authority and
responsibility for receiving and reviewing claims for benefits, determining amounts,
making disbursements, and reviewing and determining denied claims and appeals.
Before performing the bowel transplant, the University of Minnesota sought
pre-approval of the costs from Medica, HealthPartners2 and the State of Minnesota
Medical Assistance. Medica received the request on or about August 21, 1995, and
assigned it to a transplant case manager for review and investigation. The case
manager, after conducting research into bowel transplants, determined the procedure
was experimental and recommended denial to Medica's medical director. The
medical director reviewed the findings and recommended Hoffman deny benefits
2
David's father was covered under a separate plan administered by
HealthPartners.
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based upon an exclusion in the plan covering experimental procedures. Hoffman
denied benefits and the procedure was paid for by Minnesota Medical Assistance.
The notice of denial was sent to the State of Minnesota and the University of
Minnesota. There is no evidence the Tillerys received a denial notice or were
otherwise aware of the denial until May 19, 1997. Thereafter, the Tillerys were
provided with a list of benefits denied and the basis for the denials. Approximately
two years later, the Tillerys filed this action in state court alleging Hoffman had
improperly denied medical benefits to David. Hoffman removed the action to federal
court and successfully moved for summary judgment.
On appeal, the Tillerys contend Hoffman acted under a conflict of interest
when it denied David's claim for bowel transplant surgery. The Tillerys also argue
serious procedural irregularities existed which cast doubt on the propriety of
Hoffman's denial. Finally, the Tillerys contend Hoffman's denial of benefits to David
was unreasonable.
II.
We review de novo the district court's grant of summary judgment, viewing the
record in the light most favorable to the nonmoving party. Woo v. Deluxe Corp., 144
F.3d 1157, 1160 (8th Cir. 1998). Similarly, this court reviews de novo the district
court's determination of the appropriate standard of review under ERISA. Id. The
Supreme Court enunciated the appropriate standard of judicial review of benefit
determinations by fiduciaries or plan administrators in Firestone Tire & Rubber Co.
v. Bruch, 489 U.S. 101, 111 (1989). The Court held a denial of benefits challenged
under 29 U.S.C. § 1132(a)(1)(B) should be reviewed under a de novo standard unless
the benefit plan grants the administrator or fiduciary discretionary authority to
determine eligibility for benefits or to construe the terms of the plan. Firestone, 489
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U.S. at 115. When the plan grants such authority an abuse of discretion standard
applies. Layes v. Mead Corp., 132 F.3d 1246, 1250 (8th Cir. 1998).
The district court concluded the proper standard of review was abuse of
discretion. We agree. The Plan grants discretionary authority to the plan
administrator to determine eligibility and to interpret the terms of the plan, and thus,
the decision of the plan administrator is reviewed for an abuse of discretion. Schatz
v. Mut. of Omaha Ins. Co., 220 F.3d 944, 946-47 (8th Cir. 2000).
The Tillerys contend the less deferential standard of review enunciated in Woo
applies. A conflict of interest may trigger a less deferential standard of review. Woo,
144 F.3d at 1161. The degree of deference will decrease on a sliding scale in
proportion to the extent of the conflict, recognizing the arbitrary and capricious
standard is inherently flexible. Id. Not every funding conflict of interest, however,
warrants heightened review, id. at 1161 n.2, because ERISA itself contemplates the
use of fiduciaries who might not be entirely neutral. Farley v. Ark. Blue Cross &
Blue Shield, 147 F.3d 774 (8th Cir. 1998). The less deferential standard of review
applies when the plaintiff presents "material, probative evidence demonstrating (1)
a palpable conflict of interest or a serious procedural irregularity existed, which (2)
caused a serious breach of the plan administrator's fiduciary duty." Woo, 144 F.3d
at 1160. Only when a claimant meets the "two-part gateway requirement" does the
court apply a "sliding scale" approach to determine just how much deference should
be given the plan administrator's decision. Schatz, 220 F.3d at 947.
Under the first part of the sliding scale analysis, a claimant seeking a less
deferential standard of review must present material, probative evidence of a palpable
conflict of interest or serious procedural irregularity. Woo, 144 F.3d at 1160; see also
Barnhart v. UNUM Life Ins. Co., 179 F.3d 583, 589 (8th Cir. 1999) (holding a
claimant must do more than make unsubstantiated assertions to prove a palpable
conflict of interest or serious procedural irregularity). For example, when an entity
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funds a plan and is also the plan administrator there is a rebuttable presumption of a
palpable conflict of interest. Barnhart, 179 F.3d at 587-88. Not every funding
conflict, however, automatically leads to the conclusion a palpable conflict of interest
exists. See Davolt v. The Executive Comm. of O'Reilly Auto., 206 F.3d 806, 809-10
(8th Cir. 2000) (holding the district court erred by finding an automatic conflict of
interest merely because insurer and administrator were the same).
If a claimant successfully establishes either a palpable conflict of interest or
serious procedural irregularity, he must also show the conflict or irregularity caused
a serious breach of the plan administrator's fiduciary duty. Schatz, 220 F.3d at 948.
The evidence offered by the claimant must give rise to serious doubts as to whether
the result reached was the product of an arbitrary decision or the plan administrator's
whim. Id. It is not enough simply to show the plan administrator did not act in the
sole interest of the claimant. The plan administrator's fiduciary duties extend to
everyone covered by the plan, and an administrator who fails properly to investigate
a claim breaches its fiduciary duty to all beneficiaries by granting benefits to
unqualified claimants. Barnhart, 179 F.3d at 589.
The Tillerys argue Hoffman had a palpable conflict because the plan was
partially self-funded. They also claim serious procedural irregularities occurred when
Hoffman failed to provide them with (1) a summary plan description (SPD),3 (2)
timely notice of the denial of benefits, and (3) notice of their appeal rights.
Because Hoffman's plan was partially self-funded there was potential for a
conflict of interest. Further, it is undisputed the Tillerys were not provided notice of
the denial and of their appeal rights as required by ERISA. Thus, we will assume,
3
ERISA requires an employer to provide all of the participants and
beneficiaries with an accurate and comprehensive summary plan description. 29
U.S.C. §§ 1022 & 1024.
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without deciding, that the Tillerys have met the first part of the Woo test. See
Barnhart, 179 F.3d at 587-88 (holding when an entity funds a plan and is also the plan
administrator there is a rebuttable presumption of a palpable conflict of interest); cf.
McGarrah v. Hartford Life Ins. Co., 234 F.3d 1026, 1031 (8th Cir. 2000) (holding
plan administrator's failure to respond to a timely filed appeal is a serious procedural
irregularity). Next, the Tillerys must show the conflict or procedural irregularities
give rise to serious doubts as to whether the denial was the product of an arbitrary
decision or the plan administrator's whim. Schatz, 220 F.3d at 948. This they have
not done.
The Tillerys first claim Hoffman failed to prepare an SPD. Their claim,
however, is contradicted by the record. The Tillerys include in their appendix two
copies of Hoffman's SPD. While they question whether this is the actual SPD, they
provide no evidence to contradict Hoffman's assertions to the contrary. See Barnhart,
179 F.3d at 589 (holding a claimant must do more than make unsubstantiated
assertions to prove a palpable conflict of interest or serious procedural irregularity).
Next, the Tillerys argue the SPD conflicts with the Plan. The SPD does not
contain language excluding coverage for experimental procedures, and they contend
the broader coverage, implied by omission of the exclusion from the SPD, controls
over the Plan language. The Tillerys are mistaken. Although the provisions of an
SPD prevail over conflicting provisions contained in the actual plan, Jensen v.
SIPCO, Inc., 38 F.3d 945, 952 (8th Cir. 1994), the rule does not apply "when the plan
document is specific and the SPD is silent on a particular matter. While clear and
unambiguous statements in the summary plan description are binding, the same is not
true of silence." Id. (internal quotations and citations omitted) (emphasis in original).
Thus, the Plan's express language excluding experimental procedures controls.
The Tillerys also question whether they ever received a copy of the SPD.
Assuming they did not, they fail to explain how such an oversight affected their
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substantive rights or the decision of the plan administrator. See Schatz, 220 F.3d at
948 (holding the claimant must offer evidence which gives rise to serious doubts as
to whether the result reached was the product of an arbitrary decision or the plan
administrator's whim). Absent evidence to the contrary, any failure to provide the
SPD was harmless.
Finally, the Tillerys argue Hoffman's failure to provide them with timely notice
of the denial and of their appeal rights gives rise to serious doubts as to whether the
denial was the product of an arbitrary decision or the plan administrator's whim.
Schatz, 220 F.3d at 948. Hoffman admits there is no evidence showing the denial
was communicated to the Tillerys as required by ERISA. Therefore, for purposes of
summary judgment, the district court assumed, as do we, that a procedural irregularity
existed. It is, however, only when such irregularities are "so egregious that the court
has a total lack of faith in the integrity of the decision making process" that a court
may infer the plan administrator did not exercise proper judgment. McGarrah, 234
F.3d at 1031. The Tillerys fail to offer any analysis explaining how the untimely
notice so infected the decision making process as to render the decision to deny
suspect. In fact, the contrary is apparent.
When Medica received the request for coverage of the small bowel transplant
it was assigned for review and investigation to a transplant case manager. She
researched small bowel transplants through several outside sources and by reviewing
current medical literature. She determined bowel transplants were experimental, and
presented her findings to a physician who conducted an independent review and
assessment. Only then did Medica contact Hoffman and recommend denial based
upon the exclusionary language contained in the Plan. Given the investigation
conducted by Medica, and the lack of any credible evidence suggesting small bowel
transplants were not experimental in 1996, we conclude the procedural irregularity
did not so undermine the decision of the plan administrator as to render it suspect.
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Because the Tillerys have failed to meet the two-part test established in Woo,
we conclude the district court was correct when it reviewed the plan administrator's
decision for an abuse of discretion.
Under the abuse of discretion standard, "the proper inquiry is whether the plan
administrator's decision was reasonable, i.e., supported by substantial evidence."
Donaho v. FMC Corp., 74 F.3d 894, 899 (8th Cir. 1996). "Substantial evidence is
more than a mere scintilla. It means such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion." Consol. Edison Co. of N.Y. v.
N.L.R.B., 305 U.S. 197, 229 (1938). Both the quantity and quality of the evidence
may be considered. Donaho, 74 F.3d at 900. A plan administrator's decision is
reasonable if a reasonable person could have, based upon the same evidence, reached
a similar decision. The plan administrator's decision need not be the only sensible
interpretation, "so long as its decision offer[s] a reasoned explanation, based on the
evidence, for a particular outcome. If the plan administrator's decision offers a
reasonable explanation, the decision should not be disturbed even if another
reasonable, but different, interpretation may be made." Krawczyk v. Harnischfeger
Corp., 41 F.3d 276, 279 (7th Cir. 1994) (internal quotations omitted); see also
Donaho, 74 F.3d at 899. When reviewing the reasonableness of a plan administrator's
decision, we consider whether (1) the interpretation is consistent with the goals of the
Plan, (2) the interpretation renders any language in the Plan meaningless or internally
inconsistent, (3) the interpretation conflicts with the substantive or procedural
requirements of ERISA, (4) the plan administrator has interpreted the words at issue
consistently, and (5) the interpretation is contrary to the clear language of the Plan.
See Finley v. Special Agents Mut. Ben. Ass'n, 957 F.2d 617, 621 (8th Cir. 1992). In
this case, Hoffman acted reasonably when it denied payment for the small bowel
transplant.
First, the stated purpose of the Plan is to promote the health and welfare of all
covered persons through a comprehensive payment of medical benefits. At the same
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time, the Plan, in order to maximize benefits to all covered persons, limits or excludes
payment for some procedures. Exclusion of payments for experimental procedures
has the advantage of providing better coverage for more people.
Second, Hoffman's interpretation does not render any of the Plan's language
meaningless or internally inconsistent. The Tillerys argue the term "medically
necessary" is rendered meaningless by the "experimental surgery" exclusion. The two
terms are easily reconciled. The Plan covers treatment which is medically necessary
but limits treatment to that which is not experimental. The Tillerys also argue the
surgery should have been considered "reconstructive" instead of "experimental." This
argument suggests reconstructive surgery can never be experimental. Calling the
bowel transplant reconstructive surgery would not have made it less experimental.
Third, the denial does not conflict with any substantive or procedural
requirements imposed by ERISA. While Hoffman concedes the Tillerys did not get
timely notice, denial of procedural rights does not of itself create a substantive right
to benefits. See Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995); see
also Sedlack v. Braswell Serv. Group, Inc., 134 F.3d 219, 225 (4th Cir. 1998)
(holding a violation of ERISA notice provision does not entitle claimant to
substantive remedy absent a showing that the outcome would have been different);
Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1096 (9th Cir. 1985) (same). The
Tillerys have failed to present any evidence demonstrating how lack of timely notice
caused any substantive harm.
The fourth and fifth factors have also been met. This was the first and only
request for a transplant under the Plan. There is no evidence Hoffman previously or
subsequently interpreted the Plan language differently. And, the Plan expressly
excluded procedures deemed experimental. Thus, the decision was not contrary to
the clear language of the plan.
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III.
The district court's order granting summary judgment is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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