ERISA: Tenth Circuit Allows Healthcare Insurer to Reprocess a Faulty Claim Denial Despite Finding Abuse of Discretion in Handling the Claim

A.J. Peters, Of Counsel

In David P. v. United Healthcare Ins. Co.,[1] a Tenth Circuit panel endorsed a remedy that may seem unusual to laypersons and practitioners alike: having concluded that an Employee Retirement Income Security Act (ERISA)[2]   plan administrator abused its discretion in the handling of a healthcare plan beneficiary’s claim, the appellate court found that, without a clear showing that the claim should have been in fact granted, the matter should be sent back to the defendant plan administrator to correct its own mistake.

 Claim Denial and District Court Action

The plaintiff-appellee in David P. was a plan participant with health care benefits under a medical plan obtained from his employer, and of which his daughter was a named beneficiary.  When the medical plan denied claims for coverage of the daughter’s year-long treatment stay at two residential treatment centers for mental health and substance abuse, her father exhausted the appeals process with the plan and subsequently sued for a wrongful denial of benefits under ERISA in the U.S. District Court for the District of Utah.

Abuse of Discretion

The district court reviewed the administrative record on cross-motions for summary judgment.  The court applied an abuse of discretion standard to determine whether defendant United Healthcare Insurance Company and its affiliate United Behavioral Health (UBH) abused their discretion by denying the residential treatment center benefits.

Finding that UBH engaged in deficient claims processing, the Tenth Circuit panel agreed with the district court that UBH had “circumvented the dialogue ERISA mandates between plan participants claiming benefits and the plan administrators processing those benefits claims.”  Specifically, UBH abandoned its original assertion that preapproval was needed for the treatment centers, and UBH then found “no clinical information to support the medical necessity” for the treatment while neglecting to address the treating caregivers’ recommendations and facts from the diagnosis.  “[I]n denying Plaintiff’s benefits, UBH failed to consider all the evidence before it, failed to explain adequately why it denied Plaintiff’s claims, and failed to engage adequately with Plaintiffs.”

Remedy

Having affirmed the district court’s ruling on UBH’s abuse of discretion, the Tenth Circuit panel turned to the district court’s order, which directly awarded plan benefits to the plaintiff-appellee based on a finding that the claim was due.  The Tenth Circuit panel reversed the district court’s order, finding that the wrong legal standard  — subsequent to the abuse of discretion standard for the claim handling — had been applied on the question of remedies. 

Whereas the district court found the administrative record supported the plan participant’s claim for benefits “by a preponderance of the evidence,” the Tenth Circuit held that courts ought to remand benefit claim decisions for the plan administrator’s reconsideration unless “the record clearly shows that the claimant is entitled to benefits.”

By applying the stricter standard of a clear showing in favor of the claim rather than a preponderance of the evidence, the appellate court relied primarily on earlier decisions from within the Tenth Circuit, but without guidance from other circuit courts, the U.S. Supreme Court, nor the ERISA statute. 

The panel also remanded to the district court the award of attorney fees in favor of plaintiff for later reconsideration, once the plan administrator reaches a further determination on the benefits claim.

Key Takeaways

The Tenth Circuit’s decision in David P., and its application of a strict standard for an outright award of plan benefits after a finding of an abuse of discretion, likely reflects the court’s reluctance to step into the shoes of a plan administrator to firmly decide entitlements to ERISA benefits when the administrative record does not clearly and obviously reflect that benefits should have been paid.  Other federal circuits have expressed skepticism about such remands based on the lack of statutory language under ERISA authorizing court-ordered remands of benefit denials to plan administrators, as well as the current lack of U.S. Supreme Court precedent on the issue.[3]  In any event, the Tenth Circuit’s decision is a notable setback for ERISA plaintiffs, and could result in further delays in recovering ERISA plan benefits even with a district court’s finding that the plan administrator abused its discretion in denying benefits. 

Please feel free to reach out to Campbell Litigation with questions or concerns about ERISA generally, benefit claims or denials of the same, and related legal challenges.

[1]See https://casetext.com/case/david-p-v-united-healthcare-ins-co-3 for a copy of the full decision and order.

[2] 29 U.S.C. §§ 1001-1461.

[3] See, e.g., Mead v. Reliastar Life Insurance Co., 768 F.3d 102 (2d Cir. 2014) (noting that ERISA “does not contain any provision governing remands to plan administrators once those action have been initiated, nor does it explain how judicial review of determination made on remand is to be made.”).