E.J. et al v. Montana Contractors' Association Healthcare Trust

Filing 42

ORDER denying 25 Plaintiffs' Motion for Summary Judgment; granting 29 Defendant's Motion for Summary Judgment. Signed by Judge Richard F. Cebull on 9/27/2010. (EMA)

E.J. et al v. Montana Contractors' Association Healthcare Trust

Doc. 42

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF MONTANA B I L L I N G S DIVISION E .J . a Minor, by and through B.J. a nd J.J., her Parents, P la intif f s , ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) C V 09-133-BLG-RFC

ORDER

vs. MONTANA CONTRACTORS' A S S O C I A T I O N HEALTH CARE T R U ST , D e f e nd a n t . T H E MONTANA DEPARTMENT OF P U B L I C HEALTH AND HUMAN SE R V IC E S, A n Interested Party. - - -- -- - - - -- - - - - - - -- - - - - - - - - - - - --- - - - - - - - - - - - - - - - - - - - - )

In 2005, Plaintiff E.J., daughter of Plaintiffs B.J. and J.J., was severely injured d uring her birth. E.J.'s birth injuries resulted in permanent, severe health conditions, inc lud ing brain damage, cerebral palsy and spastic quadriplegia. E.J. requires fulltime care and will need a variety of healthcare services for treatment and ma na ge me nt of her conditions.

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E.J. receives assistance for her conditions through the state Medicaid program. In addition, on April 8, 2008, E.J. settled certain malpractice claims against he a lthc a re providers involved in her birth. On June 12, 2008, by Court order, an irre vo c a b le Special Needs Trust (SNT herein) was created to receive the proceeds fro m the settlement of her malpractice claims. O n July 1, 2008, after the settlement was paid and the SNT was established, E .J . became a "Covered Person" under the Montana Contractors' Association Health C a re Trust ("MCAHCT") Benefit Plain (the "Plan"), the Defendant herein. MCAHCT is an employee welfare benefit plan within the meaning of section 3(1) of the Employee Retirement Security Act of 1974 ("ERISA"), 29 U.S.C. § 1002(1), a nd is self-funded. The ERISA plan is provided through her father's employer, and ha s a lifetime benefits cap of $2 million. Once E.J. became a "Covered Person" under the Plan, various providers b e ga n to file claims. In response, Plan administrator Employee Benefit Management S e rvic e s Inc. ("EBMS") requested certain information about the malpractice s e ttle me nt and the SNT, including a copy of the court orders directing the use of s e ttle me nt funds and the dollar amount of settlement funds allocated to E.J., so that E B M S could properly process her claims pursuant to the terms of the Plan. On

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October 1, 2008, the Trust Office also requested that Plaintiffs return a signed ThirdP a rty Reimbursement Agreement. On August 15, 2008, Plaintiffs' counsel responded to the request for info rma tio n and refused to provide the requested information. On September 5, 2 0 0 8 , in response to EBMS's verbal request, Plaintiffs sent another letter addressing va rio us provisions of the Plan and reiterating their demand for coverage of E.J. On October 31, 2008, the Plan denied E.J.'s claim for coverage on the basis tha t it had not received: (1) documentation on what, if any, settlement funds had been re c e ive d and how the court had directed use of such funds; and (2) Plaintiffs' and the ir counsel's signatures on a Third-Party Reimbursement Agreement. On November 13, 2008, Plaintiffs filed a Second-Level Appeal, on the gro und s that no pertinent information had been withheld and there was no right of re imb urs e me nt. O n December 9, 2008, the Plan's denial was upheld by the MCAHCT Board o f Trustees. The Board of Trustees found that without the information and d o c ume nts requested from Plaintiffs, the Trust could not make a proper d e te rmina tio n about whether E.J.'s medical claims were covered under the terms of the Plan. The December 12 letter notifying Plaintiffs of this result enclosed a me mo ra nd um and stated grounds for denial as "failure to provide the requested -3 -

information and documents." The cover letter indicated that the Board would work w ith Plaintiffs to permit disclosure of the information in a manner that would protect its confidentiality, including court review of their denial. O n January 15, 2009, after the Trustees had affirmed EBMS's denial of E.J.'s me d ic a l claims, Plaintiffs then offered to provide some of the requested information to the trust; subject to specific conditions, requirements, restrictions, and signed a d d e nd ums . Additional correspondence was exchanged between the parties in Fe b rua ry wherein Plaintiffs offered to sign a Third-Party Reimbursement Agreement tha t did not expand reimbursement rights beyond those existing under the Plan and e xis ting law. On October 14, 2009 Plaintiffs filed their Complaint in this action, seeking re vie w of the Plan's denial of benefits and a declaration of their rights. S T A N D A R D OF REVIEW Plaintiffs' claim is brought pursuant to ERISA, 29 U.S.C. § 1132(a)(1)(B), w hic h states that a civil action may be brought "to recover benefits due him under the terms of the plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." The Supreme Court ruled in Fir e s to n e Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), that a court's role is limited to reviewing the Plan's decision to deny benefits under the abuse of -4 -

discretion standard where the plan grants the administrator the discretionary a utho rity to make the final and conclusive determination of the claim. The Ninth Circuit reviews a plan administrator's discretionary authority to d e te rmine eligibility or interpret the terms of the plan under an arbitrary and c a p ric io us standard of review. See Jones et al. v. Laborers Health & Welfare Trust Fu n d , 906 F.2d 480, 481 (9th Cir. 1990); Madden v. ITT Long Term Disability Plan fo r Salaried Employees; Fed. Electric Corp., 914 F.2d 1279, 1283 (9th Cir. 1990); H a r p e r v. Unum Life Ins. Co. of America, 621 F. Supp. 2d 931, 948-949 (E.D. Cal. 2 0 0 8 ). Pursuant to that analysis, this Court must determine whether the Trustees' d e c is io n was arbitrary and capricious. See Schikore v. BankAmerica Supplemental R e tir e m e n t Plan, 269 F.3d 956, 961 (9th Cir. 2001); Taft v. Equitable Life A s s u r a n c e Society, 9 F.3d 1469, 1471 n. 2 (9th Cir. 1993). A n ERISA administrator abuses its discretion only if it (1) renders a decision w itho ut explanation, (2) construes provisions of the plan in a way that conflicts with the plain language of the plan, or (3) relies on clearly erroneous findings of fact." B o y d v. Bert Bell/Pete Rozelle NFL Players Retirement Plan, 410 F.3d 1173, 1178 (9 th Cir.2005).

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In this case, the Plan grants the Trustees discretionary authority to interpret the P la n provisions and make determinations concerning eligibility of benefits. The Plan s ta te s : T he Plan Administrator has the responsibility and the full and absolute d is c re tio n and authority to control and manage the operation and a d minis tra tio n of the Plan, including without limitation, the authority to: a. ma k e and enforce such rules and regulations as it s ha ll deem necessary or proper for the efficient a d minis tra tio n of the Plan; b. inte rp re t the provisions of this Plan Document and S umma ry Plan Description and any writing, d e c is io n, instrument or account in connection with the operation of the Plan or otherwise; c. d e te rmine all considerations affecting the eligibility o f any individual to be or become a Covered Person; d. d e te rmine eligibility for and amount of benefits und e r the Plan for any Covered Person; e. d e te rmine all other questions or controversies, of w ha ts o e ve r character, arising in any manner or b e tw e e n any parties or persons in connection with the administration or operation of the Plan; f. a utho riz e and direct all disbursements of benefits und e r the Plan; T he decision of the Plan Administrator shall be final and binding up o n all persons dealing with the Plan or claiming any benefit und e r the Plan. (A R D00052).

The Ninth Circuit adheres to the rule that a district court is limited to the a d minis tra tive record when the court is reviewing a case on the merits for an abuse -6 -

of discretion. See Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Pr o t. Plan, 349 F.3d 1098, 1110 (9th Cir.2003) ("While under an abuse of discretion s ta nd a rd our review is limited to the record before the plan administrator, this limita tio n does not apply to de novo review." (citation omitted)); Kearney v. S ta n d a r d Ins. Co., 175 F.3d 1084, 1090-91 (9th Cir. 1999) (holding that the standard o f review informs the amount of evidence that a district court may consider); M o n g e lu z o v. Baxter Travenol Long Term Disability Benefit Plan, 46 F.3d 938, 944 (9 th Cir.1995) (holding that the district court has discretion to allow evidence that w a s not before the plan administrator "only when circumstances clearly establish that a d d itio na l evidence is necessary to conduct an adequate de novo review" (internal q uo ta tio n marks omitted)). A N A L Y SIS A. T he Trustee's Decision to Deny E.J.'s Medical Claims was not Arbitrary a nd Capricious in Light of Plaintiffs' Refusal to Provide the Required D oc um e nta tion and Information Necessary to Determine E.J.'s E ntitle m e nt to Benefits Under the Plan.

T he Trustees upheld the EBMS's determination that E.J.'s claim should be d e nie d because Plaintiffs failed to return a signed Third-Party Reimbursement A gre e me nt and did not submit the requested information, which included a copy of

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the SNT, a copy of the court orders directing the use of settlement funds, and the d o lla r amount of settlement funds allocated to E.J. In order to constitute "an abuse of discretion a trustee's factual findings must b e `clearly erroneous.'" Jones, 906 F.2d at 482. Given the unambiguous terms of the Plan in this case, the Trustees' decision was not clearly erroneous or arbitrary a nd capricious. The Plan clearly states that the Trust is not required to pay any claim when the re is evidence of third-party liability unless the Covered Person and the Covered P e rs o n' s attorney signs the Plan's Third-Party Reimbursement Agreement. The Plan p ro vis io ns requiring the signing of a Third-Party Reimbursement Agreement are set fo rth in Article XII (General Provisions) of the Plan. Article XII discusses the " T rus t' s Rights of Recover, Reimbursement, Subrogation and Offset," and states, in p e rtine nt part: B y enrollment in this Plan, a Covered Person agrees to the provisions of this section Trust's Rights of Recovery, Reimbursement, Subrogation a n d Off-Set as a condition precedent to receiving benefits under this P la n. If a Covered Person fails to comply with the requirements of this s e c tio n, the Trust may reduce, deny or eliminate benefits otherwise a va ila b le under the Plan. ... T he Following Paragraphs Apply to Both the Trust's Right of R e imb urs e me nt and the Trust's right of Subrogation: 1. T he Trust is not required to pay any claim under the Plan when the re is evidence of liability of a third party unless the Covered -8 -

Person (and the Covered Person's attorney, if the Covered P e rs o n or their legal representative has retained an attorney) signs the Plan's third-party reimbursement agreement acknowledging a nd agreeing to be bound by the Covered Person's obligations in this section Trust's Rights of Recovery, Reimbursement, S u b r o g a tio n and Off-Set. However, the Trustees, in their d is c re tio n, may authorize payment of benefits while the liability o f a third party is being legally determined. If the Covered P e rs o n and/or their attorney, if applicable, does not sign the T hird -P a rty Reimbursement Agreement after they are requested to sign, the Plan's right of recovery through Reimbursement a nd /o r Subrogation remains in effect regardless of whether the third -p a rty reimbursement agreement is signed. ... 5. T he Covered Person or their attorney, if applicable, will not act, fa il to act, or engage in any conduct directly, indirectly, p e rs o na lly or through third parties, either before or after the Trust p a ys benefits that may prejudice or interfere with the Trusts' rights to recovery hereunder. The Covered Person will not c o nc e a l or attempt to conceal the fact that recovery has occurred o r will occur.

(A R D00057). There is no dispute that E.J. suffers from serious injuries caused by thirdp a rty health care providers at her birth. However, Plaintiffs have refused to sign the T hird -P a rty Reimbursement Agreement, as required by the Plan. The Trustees' d e c is io n to uphold the denial of E.J.'s claims based on Plaintiffs' refusal to cooperate a nd provide a signed Third-Party Reimbursement Agreement is not arbitrary or c a p ric io us . The Plan terms clearly dictate that the signing of the Third-Party

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Reimbursement Agreement is "a condition precedent to receiving benefits under this P la n." Additionally, language in the Plan specifically addresses situations which re q uire coordination with others plans. Article IX Coordination of Benefits defines " O the r Plan" as including compensation or benefits that a Covered Person receives fo r eligible medical expenses from any third-party source, i.e. Third-Party C o mp e ns a tio n. The Plan provides that if the "Other Plan" is primary, then the Plan is secondary and pays a reduced amount. The Plan terms mandate that Covered P e rs o ns under the Plan provide the information necessary for the Claims A d minis tra to r or Plan Administrator to implement this section. The Plan specifically s ta te s : A p p lic a tion T he section Coordination with Other Plans is intended to prevent the payment of benefits that exceed the maximum payments for E ligib le Charges. It applies when a Covered Person is also c o ve re d , may be covered or could be covered, by any Other P la n(s ). If this Plan is primary to the Other Plan(s), this Plan p a ys its benefits in full, as if there were no Other Plan. If the O the r Plan(s) is primary, this Plan is secondary and pays a re d uc e d amount that, when added to the benefits payable by the O the r Plan(s), will not exceed 100% of Allowable Expenses. . . The benefits that are payable under an Other Plan include the b e ne fits that would have been payable had a claim been made und e r the Other Plan for the benefits. If needed, the -1 0 -

authorization is hereby given this Plan to obtain the information a s to the benefits or services available from the Other Plan or P la ns , or to recover overpayments. O the r Plan ... "Other Plan" also includes: a. a ny compensation and/or benefits a Covered Person re c e ive s for his/her eligible medical expenses from a ny third-party source ("Third Party C o mp e ns a tio n" ); G e n e r a l Rules j. R ight to Information . . . Any person claiming b e ne fits under this Plan shall furnish to the Claims A d minis tra to r or Plan Administrator such info rma tio n as may be necessary to implement this s e c tio n Coordination with Other Plans. (AR D00049-D00051). A rtic le XII General Provisions of the Plan also contains a mandatory provision re q uiring Covered Persons to furnish to the Plan Administrator (within 90 days of a re q ue s t) any information that may be necessary to administer this Plan, including but no t limited to court orders. Article XII specifically states, in pertinent part:

R ig ht to Information . . . Any person claiming benefits under this Plan shall furnish to the Plan Administrator or the designated agent such information (i.e ., birth, death or marriage certificates, court orders, divorce d e c re e s , adoption papers, tax returns, etc.) as may be necessary to administer this Plan, within 90 days of the request in order for the claim to be eligible. -11-

(AR D00058). T he re is no dispute that Plaintiffs received monetary compensation from thirdp a rty sources through Settlement Agreements they entered into with health care p ro vid e rs who caused E.J.'s injuries at birth. This compensation from third-parties c le a rly falls into the definition of "Other Plan," as defined by the Plan terms. It is also undisputed that Plaintiffs refused to provide the information and d o c ume nta tio n requested by the Plan Administrator in order to determine the e ligib ility of E.J.'s claims. The Plan Administrator requested the court orders d ire c ting the use of settlement funds, a copy of the SNT and the dollar amount of the s e ttle me nt funds allocated to E.J. This information was necessary for the Plan A d minis tra to r to make a determination as to whether E.J.'s medical claims were c o ve re d under the specific terms of the Plan. Based upon Plaintiffs failure to provide the required documentation, the T rus te e s ' decision to deny E.J.'s claim for benefits was entirely reasonable and ne c e s s a ry. The terms of the Plan mandated that Plaintiffs provide such information.

Article VIII of the Plan outlines general exclusions and limitations of the Plan, s p e c ific a lly excluding from coverage medical expenses for which a Covered Person re c e ive s or would be entitled to receive benefits from a third-party or "other plan." -12-

Article VIII states that benefits received from a third-party or "other plan" that are re c e ive d by the Covered Person must be used first, as the primary coverage, prior to the Plan paying for any expenses. Subsection av of Article VIII provides the fo llo w ing is excluded from coverage: . . . medical expenses . . . to the extent the Covered Person re c e ive s , or would be entitled to receive, benefits from a third p a rty, or from insurance or any other policy or plan . . . Such b e ne fits received or that could be received by the Covered Person s ha ll be used first, as the primary coverage for such expenses, p rio r to this Plan paying for expenses.

(A R D00048). P la intiffs ' interpretation of the Plan relies on the provision of the Plan wherein it states: "if a Covered Person is also entitled to and covered by Medicaid, this Plan is primary and Medicaid is secondary." This Plan provision must be considered in c o njunc tio n with the other provisions in the Plan, including exclusion provisions, third -p a rty reimbursement provisions, and the coordination of benefit provisions. The Plan clearly states that Plaintiffs must sign and return the Third-Party R e imb urs e me nt Agreement as a "condition precedent to receiving benefits under this P la n" and that Plaintiffs must produce documents regarding their third-party s e ttle me nts . Failure to comply with this provision is a reasonable basis for the T rus te e s to deny benefits to E.J. -1 3 -

Plaintiffs also argue that because they settled with the third-party tortfeasors b e fo re E.J. became a Covered Person under the Plan, the Plan is not entitled to any re imb urs e me nt interest for claims that it may pay on her behalf that were the result of the third parties' negligence or wrongdoing. This is an incorrect interpretation of the P la n. The Plan's "Right of Reimbursement" provision provides that a Covered P e rs o n must reimburse the plan for any money the Covered Person receives from a lia b le third-party for medical expenses resulting from the accident, injury, condition o r illness caused by the third-party. The provision specifically states: T he Covered Person must reimburse or agree to reimburse the T rus t, in first priority, from any money recovered or reimbursed fro m a liable third party, for the amount of all money the Trust p a id or will pay to or on behalf of the Covered Person for me d ic a l expenses resulting from accident, Injury, condition, or Illne s s .

(AR D00056) C o ntra ry to Plaintiffs' assertions, there is no language in the Plan that limits the Plan's right to third-party reimbursement recovered by the Covered Person after the Plan becomes effective. The Trustees' interpretation of the Plan's language is re a s o na b le . P la intiffs express concern that the TPRA would have conflicted with the s ub s ta ntive and procedural requirements of ERISA. Specifically, since 1986, an -1 4 -

ERISA statute has mandated that state laws and regulations enacted in compliance w ith the Medicaid scheme, dictating that ERISA plans are primary to Medicaid and tha t a SNT is the payer of last resort, are not preempted by ERISA. 29 U.S.C. § 1 1 4 4 (b )(8 ). Plaintiffs also state that the TPRA retroactively asserted a right to past s e ttle me nt proceeds and would have required Plaintiffs to initiate litigation against the SNT. T he TPRA actually states that "if any recovery is made from any reasonable p a rty" the Trust's recovery is reduced by its pro rata share of attorney fees and costs. (AR D00042). The TPRA did not impose any new requirements on Plaintiffs, as the P la intiffs had already initiated lawsuits against the responsible third-party tortfeasors. The TPRA did not require Plaintiffs to initiate litigation against the SNT itself. The T P R A states: In exchange for the Trust's agreement to pay the Medical Expenses, Covered Person agrees to proceed by claim or a p p ro p ria te legal action against the third party or parties . . . b e lie ve d to be liable. . . (AR D00041). The SNT is not a third-party tortfeasor subject to a legal action by P la intiffs . P la intiffs have failed to show that the TPRA broadens the Plan's rights beyond tho s e set forth in the Plan itself. It is not arbitrary and capricious for the Trustees to

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require Plaintiffs to sign the TPRA as a condition precedent to obtaining benefits und e r the Plan. CONCLUSION T he Trustees' decision to deny E.J.'s claim for benefits under the Plan was not a rb itra ry and capricious in light of the Plan's provisions and Plaintiffs' refusal to p ro vid e the requested information and documentation necessary to determine her e ntitle me nt to benefits under the Plan. Defendant's Motion for Summary Judgment (doc. #29) is GRANTED and P la intiffs ' Motion for Summary Judgment (doc. #25) is DENIED. The Clerk of C o urt is direct to notify the parties of the making of this order, enter Judgment in fa vo r of Defendant, and close this case accordingly. DATED this 27th day of September, 2010.

/s / Richard F. Cebull___________ R IC H A R D F. CEBULL U .S . DISTRICT COURT JUDGE

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