Opinion
Case No. 3:06CV890.
February 6, 2007
ORDER
This is an ERISA case in which South Lorain Merchants Association Health and Welfare Benefits Plan Trust ("South Lorain") denies coverage for surgeries resulting from an alleged preexisting condition. Plaintiff Oberlin underwent surgeries in late 2004 and early 2005 for a fistula and abscess. South Lorain alleges Oberlin received treatment for the abscess in July 2004, before his insurance coverage began. Both parties have moved for summary judgment.
For the reasons that follow, plaintiff's motion for summary judgment shall be granted, and defendant's motion shall be denied. This court will also grant attorneys fees to plaintiff.
Background
Plaintiff Oberlin enrolled in South Lorain's insurance plan, effective August 1, 2004. On July 12, 2004 — two weeks before the effective date — Oberlin saw his doctor about a slight bulge behind his rectum. A chart note noted that Oberlin had a history of perirectal abscess, but the doctor made no diagnosis on that date. The doctor prescribed antibiotics and the condition appeared resolved.
In October, 2004, Oberlin returned to his doctor complaining of blood in his stool. Over the next six months Oberlin had $30,000 worth of surgeries due to a fissure and subsequent abscess.
South Lorain refused to pay those bills because it concluded that the surgeries and treatment related to the condition for which Oberlin had been examined and treated on July 12th, before the coverage date. South Lorain alleges Oberlin failed to disclose that condition to the insurer before the effective date.
Oberlin did not submit — and South Lorain did not request — the records of the surgeries. All South Lorain had were the bills and the note relating to the July 12th visit. Based on this evidence, South Lorain refused to cover Oberlin's medical costs.
On December 5, 2005, South Lorain denied Oberlin's second administrative appeal of the denial of benefits on the sole basis that the surgeries were for a non-disclosed pre-existing condition. Having exhausted his administrative remedies, Oberlin brought the present action.
Standard of Review
Summary judgment will be granted if "there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). All evidence must be viewed in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An opponent of the motion for summary judgment may not rely on the mere allegations of the complaint, but must put forward specific facts showing a genuine issue for trial. Id.
Oberlin challenges the denial of coverage under the Employee Retirement Income Security Act, which authorizes actions to enforce rights under the terms of an ERISA plan. 29 U.S.C. § 1132(a)(1)(B).
When an ERISA plan provides a clear grant of discretion to the plan administrator, and the decision being appealed was made in compliance with plan procedures, courts apply an "arbitrary and capricious" standard of review. Sanford v. Harvard Indus., Inc., 262 F.3d 590, 595 (6th Cir. 2001). South Lorain's insurance plan vests the plan administrator with discretionary authority to interpret the terms of the plan. Under the "arbitrary and capricious" standard thus applicable, the administrative decision will be upheld if it is the result of "a deliberate, principled reasoning process and if it is supported by substantial evidence." Baker v. United Mine Workers of Am. Health Ret. Funds, 929 F.2d 1140, 1144 (6th Cir. 1991).
Although the standard is deferential, I am required to review "the quality and quantity of the medical evidence and the opinions on both sides of the issues." McDonald v. Western-Southern Life Ins. Co., 347 F.3d 161, 172 (6th Cir. 2003). Furthermore, "the federal courts do not sit in review of the administrator's decisions only for the purpose of rubber stamping those decisions." Moon v. Unum Provident Corp., 405 F.3d 373, 379 (6th Cir. 2005).
I will also take into consideration the apparent financial interest South Lorain has in denying coverage for Oberlin. See Glenn v. Metlife, 461 F.3d 660, 666 (6th Cir. 2006) ("[W]e are entitled to take into account the existence of a conflict of interest that results when . . . the plan administrator who decides whether an employee is eligible for benefits is also obligated to pay those benefits"); Webber v. Aetna Life Ins. Co., 375 F.Supp.2d 663, 673 (E.D. Tenn. 2005) ("Additionally, in applying the arbitrary and capricious standard to this issue, the Court considers the fact that Aetna has a financial interest in reviewing benefit claims.").
Discussion 1. Burden of Proof
Plaintiff bears the original burden of demonstrating that coverage exists under the plan. Schwartz v. CNA Ins. Co., 406 F.Supp.2d 844, 847 (N.D. Ohio 2005). Oberlin was a participant in the plan at the time of his medical care in late 2004 and early 2005. The plan, in accordance with its status as an "employee welfare benefit plan" under 29 U.S.C. § 1002, provides coverage for medical, surgical, or hospital care. See Doc. 16, Exh. 1. Oberlin has sufficiently proven the insurance plan would, but for the insurer's adverse decision, cover plaintiff's surgeries.
Defendant, the insurer, bears the burden of showing an exclusion applies that precludes coverage under the plan. Schwartz, supra, at 847. South Lorain thus has the burden of establishing the abscess was a pre-existing condition. South Lorain has the burden of producing documents, to the court and in the administrative record, that can compare the later treatment with the records of the alleged pre-existing condition. In so doing, South Lorain had the obligation to acquire records underlying the bills submitted to it for this claim.
2. Evidence in the Record a. Evidence of July Treatment
The administrative record contains no evidence concerning Oberlin's July 12, 2004, visit to Dr. Harvey. The only evidence presented to this court was submitted by Oberlin himself (namely, a one page note from July 12, 2004, from the Bryan Medical Group. [Doc. 18-1, Appx. 1]. On the note, Dr. Harvey noted a history of rectal abscess, stated there was a bulge behind Oberlin's rectum, and prescribed antibiotics as treatment for the bulge. The note does not make a diagnosis of, or treatment for, a perirectal abscess.
Oberlin had a previous perirectal abscess in 1995.
This note is the entirety of the evidence in the record and before this court.
There is, thus, no documentation that Oberlin was treated for a perirectal abscess, either on the administrative record or before this court. Dr. Harvey's letter to South Lorain confirms that he did not diagnose Oberlin with a perirectal abscess, nor did he provide treatment to Oberlin for an abscess, at the July 12, 2004 appointment. [Doc. 18-1, Appx. 2].
b. Evidence Demonstrating a Connection Between the July Treatment and Later Medical Procedures
The administrative record also fails to demonstrate a connection between the condition and antibiotic treatment Oberlin received on July 12, 2004, and Oberlin's subsequent surgeries for an anal fistula and abscess. It is the burden of South Lorain to prove there was a connection, that the abscess was a pre-existing condition, and that it subsequently was not covered under the insurance plan.
South Lorain did not request copies of medical records related to disputed bills, nor did it engage a medical professional to review the bills or records. There are no medical records detailing the surgeries that Oberlin underwent, and for which he sought reimbursement.
South Lorain also did not contact Dr. Harvey, and did not order an independent medical examination of Oberlin. The administrative record on which South Lorain made its decision contained no substantial evidence.
I find, given the dearth of any records, that the administrative decision to deny insurance coverage for Oberlin was not supported by substantial evidence. Therefore, I find South Lorain's decision was arbitrary and capricious.
3. Legal Fees
Attorney's fees may be awarded to the prevailing party, pursuant to 29 U.S.C. § 1132(g)(1). Section 1132(g)(1) has been interpreted by the Sixth Circuit as giving "substantial discretion" to the district court to grant or deny a request for attorney's fees in an ERISA action. Jordan v. Michigan Conf. of Teamsters Welfare Fund, 207 F.3d 854, 860 (6th Cir. 1998).
In exercising my discretion to award fees, I consider the following five factors:
1) the degree of the opposing party's culpability or bad faith; 2) the opposing party's inability to satisfy an award of attorney's fees; 3) the deterrent effect of an award on other persons under similar circumstances; 4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and 5) the relative merits of the parties' positions.Secretary of Dep't of Labor v. King, 775 F.2d 666, 669 (6th Cir. 1985).
The King factors are flexible and assist a court in making a determination for attorney's fees. "The factors simply summarize considerations that have sometimes been deemed significant in other cases." Foltice v. Guardsman Products, Inc., 98 F.3d 933, 937 (6th Cir. 1996).
Presently, I find four of the factors weigh heavily in favor of granting attorney's fees to Oberlin. South Lorain acted with culpability, or "blameworthiness," in failing to take any action to substantiate its denial of coverage for Oberlin's medical treatment. Secondly, Oberlin asserts, and South Lorain does not dispute, that South Lorain has the means to satisfy an award of attorney's fees.
The Sixth Circuit has found "culpability is defined merely as `blameworthiness,' Black's Law Dictionary 379 (6th ed. 1990), `implying that the act or conduct spoken of is reprehensible or wrong, but not that it involves malice or a guilty purpose.'" Foltice, supra, at 940.
The deterrent effect of an award is also an important consideration. "Fee awards are likely to have the greatest deterrent effect where deliberate misconduct is in the offing." Foltice v. Guardsman Products, Inc., 98 F.3d 933, 937 (6th Cir. 1996). South Lorain determined coverage did not apply to Oberlin's medical treatment in a cursory and unsubstantiated manner. Because of South Lorain's culpable conduct, an award of attorney's fees may deter South Lorain from summarily refusing to cover employee health costs, and encourage South Lorain instead to examine each claim individually and with sufficient scrutiny.
For the reasons stated above, the fifth factor favors the plaintiff. South Lorain's actions were not due to a simple mistake, but rather a lack of diligence in examining an insurance claim, and an eagerness to avoid coverage.
Having found a substantial basis in four of the five King factors to support a finding of attorney's fees, I will grant attorney's fees to Oberlin.
Conclusion
South Lorain took no steps to establish a factual basis for its decision. Not only was South Lorain's decision made without any factual information about the July 12, 2004, appointment, no factual information was considered about the subsequent medical care Oberlin received for his fistula and abscess. Considering also that defendants act in their own interest by denying payment for the medical treatment, all these factors together reflect a decision that can only be called arbitrary and capricious. Oberlin's motion for summary judgment shall, accordingly, be granted.
For the foregoing reasons, it is
ORDERED THAT:
1. Plaintiff's motion for summary judgment be, and the same hereby is granted; defendant's motion for summary judgment is hereby denied; and
2. Counsel for plaintiff be, and they hereby are found to be entitled to an award of attorneys' fees; an itemized statement in support of such award shall be filed on or before February 20, 2007; defendant's response and opposition, if any, to the amount claimed shall be filed on or before March 5, 2007; plaintiff's reply shall be filed on or before March 15, 2007.
So ordered.