Baby Steps: Two Recent Court of Appeal Decisions Move Deferential Judicial Analysis in the Right Direction

I used to tell clients that, if their case is subject to ERISA’s absurd abuse-of-discretion, insurer-can’t-lose burden of proof (I refuse to call it “standard of review” as many do, ‘cause that’s bogus IMO) they need to win the ball game 10-0; if they only win 9-1 then they lose. That’s because many courts effectively held that no matter how strongly the evidence supported the claimant, if the insurer could point to even one flimsy piece of evidence in its favor, that’s good enough for the insurer to prevail.

Which is, of course, absurd.

Two courts of appeal, however, have now issued opinions which indicate that, maybe just maybe, my clients will only need to win the game 9-1 (or, dare I hope, maybe even 8-2) in order to overcome the abuse-of-discretion burden.

First, the Ninth Circuit, in Pacific Shores Hospital v. United Behavioral Health et al., addressed the canard that an insurer’s decision just has to be upheld if it supported by any reasonable basis, and said that no longer holds water:

We wrote twenty-three years ago in Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412 (9th Cir. 1991), that we will uphold a plan administrator’s decision if it is grounded in “any reasonable basis.” Id. at 1417 (internal quotation marks omitted); see also Sznewajs v. U.S. Bancorp Amended & Restated Supplemental Benefits Plan, 572 F.3d 727, 734–35 (9th Cir. 2009). This language in Horan could be read to mean that we should make an “any reasonable basis” determination without looking at all the circumstances of the case. To take a simple example, factors favoring discharge from the hospital might provide reasonable bases if considered in isolation. A patient might be eating well, have proper blood sugar levels, have no infections, and have a supportive family. Those factors, considered in isolation, would support discharge. But if the reason for the patient’s hospitalization is severe congestive heart failure, those factors would not be reasonable bases to support discharge. In the wake of Glenn, we have recognized that this unrealistic reading of the any-reasonable-basis test is not “good law when . . . an administrator operates under a structural conflict of interest.” Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 674 (9th Cir. 2011). It is also not “good law” even when an administrator is not operating under a conflict of interest and we are performing a “straightforward abuse of discretion analysis.” See Abatie, 458 F.3d at 968; cf. Conkright v. Frommert, 559 U.S. 506, 521 (2010) (“Applying a deferential standard of review does not mean that the plan administrator will prevail on the merits. It means only that the plan administrator’s interpretation will not be disturbed if reasonable.” (internal quotation marks omitted)). In all abuse-of-discretion review, whether or not an administrator’s conflict of interest is a factor, a reviewing court should consider “all the circumstances before it,” Abatie, 458 F.3d at 968, in assessing a denial of benefits under an ERISA plan.

That’s better, at least a little bit better.

Then, the Sixth Circuit issued Butler v. United Healthcare, and addressed United’s argument, which we see all the time, that its denial of benefits could not possibly have been an abuse of discretion because it had paid several doctors to opine that the medical care in question wasn’t medically necessary. The court held that just because you can gin up a few pieces of evidence by paying some doctor to say what you want them to say, you might still lose:

United adds that the decision to deny benefits cannot be arbitrary and capricious because five reviewing physicians agreed with it.  That reviewing physicians paid by or contracted with the insurer agree with its decision, though, does not prove that the insurer reached a reasoned decision supported by substantial evidence.  The physicians’ opinions carry weight only to the extent they provide a fair opinion applying the standard for granting benefits to the facts of the case.  Elliott, 473 F.3d at 619.   The reviewing physicians did not do that.  They misstated or omitted the key fact of Janie’s prior failed outpatient treatment and ignored United’s guideline
that allowed residential rehabilitation where outpatient treatment had not worked in the past. This argument, too, proves too much.  If a decision to deny benefits could never be arbitrary and
capricious when backed by the insurer’s reviewing physicians, court review would be for naught. The insurer would invariably prevail so long as the insurer had physicians on its staff willing to confirm its coverage rulings. That also does not make sense.

Again, baby steps. But they represent a movement from insurer-can’t-lose to insurer-might-just-possibly-lose-once-in-awhile, and that’s a good thing. Of course, that still doesn’t explain why an insurer shouldn’t lose if it’s just, you know, wrong.