OSF Healthcare System, an Illinois not for profit corporation d/b/a SAINT FRANCIS MEDICAL CENTER v. ALDI Inc Group Insurance Welfare Benefit Plan
Filing
11
ORDER and OPINION Entered by Magistrate Judge John A. Gorman on 10/2/12. The parties are therefore directed to file cross motions for summary judgment on or before Nov 9, 2012. Responses and replies are governed by CD Ill Local Rule 7.1D. The telephone conference on Friday October 5, is cancelled as unnecessary(SW, ilcd)
E-FILED
Tuesday, 02 October, 2012 03:29:33 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
OSF Healthcare System,
Plaintiff
v
Aldi Inc. Group Insurance Welfare
Benefit Plan,
Defendant,
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Case No. 12-1105
ORDER AND OPINION
I. INTRODUCTION
During June of 2010, Christopher Flowers was admitted to OSF through the emergency
room following a high speed motor vehicle accident. The cost of the allegedly-reasonable medical
treatment was $58,873.90. He was a participant in Aldi Inc Group Insurance Welfare Benefit Plan.
The plan denied payment because the pre-admission review procedures were not followed and
because the medical services and supplies were not medically necessary. The complaint alleges that
the Plan covers emergency room services at $100 with a $100 co-pay that is waived if the patient
is then admitted to the hospital. No pre-admissions procedures are required in an emergency.
Plaintiff seeks de novo review or, in the alternative, a finding that denial of payment was arbitrary
and capricious.
At the Rule 16 scheduling conference, it became apparent that the parties were in
disagreement about whether this is an ERISA case in which discovery is proper, or whether instead
this Court’s review is limited to the record that was before the Plan at the time coverage was denied.
The parties were ordered to brief this question and have now done so.
II. THE PLAN
The Plan is attached as Exh. B to the Complaint. It identifies Aldi Inc. (“Aldi”) as the Plan
Administrator. (p.65) The Plan document does not define Aldi’s authority under the Plan. Instead,
the Plan contains language defining the authority delegated by Aldi to CG1. The pertinent section
of the Plan (p.65) reads as follows:
The Plan Administrator delegates to CG the discretionary authority to interpret and apply
plan terms and to make factual determinations in connection with its review of claims under
the plan. Such discretionary authority is intended to include, but not limited to [sic], the
determination of the eligibility of persons desiring to enroll in or claim benefits under the
plan, the determination of whether a person is entitled to benefits under the plan, and the
computation of any and all benefit payments. The Plan Administrator also delegates to CG
the discretionary authority to perform a full and fair review, as required by ERISA, of each
claim denied which has been appealed by the claimant or his duly authorized representative.
III. ERISA
In ERISA cases such as the one before this Court, denials of benefits are reviewed de novo
unless the plan at issue gives the plan administrator discretion to construe the policy terms.2
Firestone Tire and Rubber Co v Bruch, 489 US 101, 115 (1989); Hess v Reg-Ellen Machinery Tool
Corp 423 F3d 653, 658 (7th Cir 2005); Wetzler v Illinois CPA Society & Foundation Retirement
Income Plan, 586 F3d 1053, 1057 (7th Cir 2009).
Where a plan administrator or fiduciary is given discretion to interpret the provisions of the
plan, the decisions are reviewed using the arbitrary and capricious standard. Sellers v Zurich
1
Cigna is also referred to as “CG,” which stands for “Connecticut General.” See Exh. B
to the Complaint, at “Important Information.”
2
De novo review is also appropriate if the basis of the plan administrator’s denial of
benefits was based on construction of a controlling legal principle, rather than on factual
questions. Sellers, 627 F3d at 631; Silvernail v Ameritech Pension Plan, 439 F3d 355, 357 (7th
Cir2006). As stated, the decision in question here was that procedures were not followed and that
services were not reasonably necessary. In other words, the decision was not based on legal
questions, so this principle is inapplicable to this case.
American Insurance Co, 627 F3d 627, 631 (7th Cir 2010); James v General Motors Corp, 230 F3d
315, 317 (7th Cir 2000). Under that standard, an administrator's interpretation is given great
deference and will not be disturbed if it is based on a reasonable interpretation of the plan's
language. Russo v Health, Welfare & Pension Fund, 984 F2d 762, 765 (7th Cir1993) (“although it
is an overstatement to say that a decision is not arbitrary and capricious whenever a court can review
the reasons stated for the decision without a loud guffaw, it is not much of an overstatement”).
The Seventh Circuit has held that “there are no ‘magic words' determining the scope of
judicial review” in ERISA cases. That Court has, however, provided specific guidance to lower
courts. Herzberger v Standard Insurance Co, 205 F3d 327, 331 (7th Cir2000). Herzberger held that
the critical question is notice: “participants must be able to tell from the plan's language whether the
plan is one that reserves discretion for the administrator.” See also Diaz v Prudential Insurance Co
of America, 424 F3d 635, 637 (7th Cir2005). The Herzberger Court drafted the following “safe
harbor” language for inclusion in ERISA plans: “Benefits under this plan will be paid only if the
plan administrator decides in his discretion that the applicant is entitled to them.” Herzberger, 205
F3d at 331.
The “safe harbor” language is not mandatory. Id. If the language of the plan “indicates with
the requisite if minimum clarity that a discretionary determination is envisaged.” Id. (emphasis
added), then notice to the employee is sufficient, and the appropriate review is the more deferential
“arbitrary and capricious” standard. Black v Long Term Disability Insurance, 582 F3d 738, 744 (7th
Cir 2009).
In Perlman v Swiss Bank Corp Comprehensive Disability Protection Plan, 195 F3d 975 (7th
Cir 1999), the Court held that if review is deferential - in other words, if the court’s review will
apply the arbitrary and capricious standard - then the review is limited to the administrative record,
and no discovery is allowed. Id at 981-82. When review is de novo parties are allowed to take
discovery and present new evidence. Id at 982. In addition, where a prima facie case of misconduct
or bias by the plan administrator has been demonstrated, some limited discovery may be permissible
as to that issue. See, for example, Semien v Life Insurance Co of North America, 436 F3d 805, 81314 (7th Cir 2006).
IV DISCUSSION
There is no question that the language quoted above from the Plan in question is sufficient
to satisfy the “notice” concerns discussed by the Herzberger Court. Anyone reading that paragraph
would know that this Plan has reserved discretion “to interpret and apply plan terms and to make
factual determinations.”
The issue raised by Plaintiff is that the Plan did not confer this discretionary authority - or
any authority at all - on the Plan Administrator. The Plan simply states that the Plan Administrator
delegates its discretionary authority to CG. If the Plan did not confer any discretion on the
Administrator, then the Administrator had no discretion to delegate. Hence, says Plaintiff, no
discretionary authority was given to anyone.
This circular argument ignores the focus that is at the heart of this determination: did the Plan
give proper notice to Plan beneficiaries that discretion was being reserved. Clearly it did.
None of the cases cited by Plaintiff contradict that conclusion, because all of them are
distinguishable. In Ruttenberg v US Life Insurance Co, 413 F3d 652, 659 (7th Cir 2005), the
language on which the Plan relied was not contained in the Plan document itself but in some other
peripheral document. In Postma v Paul Revere LIfe Insurance Co, 223 F3d 533, 538 (7th Cir
2000), the Plan required medical proof of disability that could be waived if the administrator
received “proof acceptable to us.” The Court found this language did not inform a reader that the
administrator had discretion either to interpret the entire policy or to make a decision on the ultimate
issue of whether a claimant was disabled. Id at 539.
In Reinertsen v Paul Revere Life Insurance Co, 127 F Supp 2d 1021 (ND Ill 2001), the
Northern District considered a Plan that, unlike the Plan in question in the case at bar, contained no
language at all about discretion; the conferral of discretion was contained only in the Summary Plan
Description (“SPD”). The Court concluded that an SPD cannot expand the coverage of the Plan
itself. In Sellers, 627 F3d 627, the Plan in question included an accidental death and dismemberment
insurance policy issued by Zurich. The policy clearly gave Zurich discretion to construe the policy
and to determine eligibility for benefits. In Fritcher v Health Care Services Corp, 301 F3d 811, 817
(7th Cir 2002), the Court found that the language “in the reasonable judgment of the Claim
Administrator” did not serve as adequate notice to participants that the administrator’s judgment
would be “insulated from judicial review.” Id.
The quoted language from page 65 of the Plan might have been more artful. That statement
does not, however, detract from the conclusion that participants and beneficiaries have been put on
adequate notice by the language that discretion has been reserved by the Plan and that judicial
review will be limited. Provision of that notice is the focus of the safe harbor language and any other
language that purports to reserve discretion.
Moreover, were Plaintiff’s interpretation adopted, it would render the entire quoted
paragraph meaningless. In Illinois, contract construction requires that, where possible, meaning is
ascribed to every clause and nothing is rejected as meaningless. Curia v Nelson, 687 F3d 824, 829
(7th Cir 2009)(Illinois law). In order to give this paragraph meaning, the delegation of authority
contained in the Plan Document must be read as a delegation by the Plan that in essence bypassed
the Plan Administrator and directly delegated the authority to CG. Any other reading makes no
sense.
Finally, de novo review is proper where a prima facie case of misconduct or bias by the plan
administrator has been demonstrated. No such demonstration has been attempted in this case.
V CONCLUSION
For these reasons, I conclude that the review in this case will be undertaken using the
arbitrary and capricious standard, and that no discovery is needed because the Court’s review is
limited to the administrative record.
The parties are therefore directed to file cross motions for summary judgment on or before
Nov 9, 2012. Responses and replies are governed by CD Ill Local Rule 7.1D. The telephone
conference on Friday October 5, is cancelled as unnecessary.
ENTER this 2nd day of October, 2012
s/ John A. Gorman
JOHN A. GORMAN
UNITED STATES MAGISTRATE JUDGE
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