The U.S. District Court for the District of Utah, in R.E. v. Blue Cross Blue Shield, has ruled that the failure to properly follow ERISA’s claims procedures may result in a reversal of a claims denial and the award of attorney’s fees to the claimant.
Law. ERISA requires employee benefit plans to provide adequate written notice to any participant whose claim for benefits has been denied. This notice must: (i) be composed in a manner calculated to be understood by the participant, (ii) set forth the specific reasons for the denial, and (iii) afford a reasonable opportunity to the participant for a full and fair review of the decision denying the claim.
Facts. A group health plan participant attempted to obtain preauthorization approval for his daughter’s residential mental health treatment. The plan’s insurer verbally denied preauthorization and then communicated the decision in an email to the treatment facility stating, “Unfortunately, [the daughter’s] insurance…requires [the facility] to have 24 hour nursing On-Site.” In another email, the insurer stated it would “reach out to the family to discuss the appeals process and how we will need to review the plan to see what we can do.” The insurer never issued a written denial to the participant and there was no further communication concerning the initial denial.
When the participant appealed this decision, he received a denial letter stating that, “This charge is a duplicate of a previously processed claim. Adjustment: credit only-reason unknown.” The letter mentioned “initial decision codes” of 129 and 700, and stated, “we regret our decision could not be more favorable.” However, the letter did not provide a key for interpreting the decision codes, or make one available to the participant. The letter confirmed this was the participant’s one internal appeal and that “internal appeal rights have now been exhausted.”
The participant sued in federal court for the recovery of benefits and attorneys’ fees. Both sides asked to court to grant summary judgment in their favor.
Court Decision. The court noted that, “For a claimant, the ‘full and fair’ administrative review required by ERISA ‘means knowing what evidence the decision-maker relied upon, having an opportunity to address the accuracy and reliability of the evidence, and having the decision-maker consider the evidence presented by both parties prior to reaching and rendering his decision.’” Citing an earlier case, it stated that, “Fundamentally, ERISA requires a ‘meaningful dialogue’ between plan administrators and beneficiaries.”
During the trial, the insurer requested the court rule in its favor, saying that it had denied the participant’s claim because the facility did not meet the required criteria for coverage, as defined by the plan policy. It also identified these criteria for the court. However, the court rejected the insurer’s rationale, saying the insurer could have clearly set forth the basis for its decision and the relevant provisions of the plan in its claims denial letter. The court observed that the insurer did not do that and agreed with the participant that the “denial letter doesn’t even approximate a decision that communicates a reasoned and principled process.”
The court then ruled that the insurer’s failure to follow ERISA procedures provided it with a basis to reverse the denial of benefits. Upon finding an administrator’s process was procedurally deficient, the court explained that it “may either remand the case to the plan administrator for a renewed evaluation of the claimant’s case or [it] may order an award of benefits.” It noted that in a case where “the plan administrator failed to make adequate findings or to explain adequately the grounds of its decision, the proper remedy is to remand the case to the administrator for further findings or explanation.” Therefore, the court remanded the matter to the insurer to conduct a fair and full review of the participant’s claim in accordance with the plan and ERISA’s procedural requirements.
The court also ruled that the participant had “achieved a degree of success on the merits warranting an award of attorney’s fees and costs.” Although the court did not rule that the insurer acted in bad faith in denying benefits, it found that “[the insurer] is certainly culpable for its failure to properly evaluate [the participant’s] claim and for its significant procedural deficiencies.”