Opinion
CV 03-897-BR.
July 13, 2004
BRANDON B. MAYFIELD, Portland, OR, Attorney for Plaintiff.
BRADLEY L. MIDDLETON, Tigard, OR, Attorney for Defendant.
OPINION AND ORDER
This matter comes before the Court on Plaintiff's Motion for Summary Judgment (#28) and Defendant's [Cross] Motion for Summary Judgment (#37).
Plaintiff seeks insurance coverage under his former employer's group health insurance plan. The plan is an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq.
For the reasons that follow, the Court GRANTS Plaintiff's Motion and DENIES Defendant's Motion. Accordingly, the Court REVERSES Defendant's denial of Plaintiff's claim for medical expenses.
FACTS
Defendant is a partially self-funded healthcare plan (Plan) subject to the provisions of ERISA. Vision Plastics Inc. (VPI) is the Plan sponsor and the Plan Administrator. Kipp Company is the Claims Administrator.
Defendant is self-funded with excess coverage provided by Safeco Insurance.
After Plaintiff's employment with VPI ended, Plaintiff elected to continue his employer-sponsored health insurance coverage and, therefore, Plaintiff remained a beneficiary under the Plan.
In March 2002, Plaintiff injured his back at home. On June 14, 2002, Plaintiff's surgeon, Daniel Rohrer, M.D., reported "[a]pproximately 10 months ago he [Plaintiff] started his own business in automation engineering. This past March he was in the process of building a hydraulic tilt table and he was lifting up one end of a 500-pound object. This was on approximately March 15th." Dr. Rohrer recommended surgery, which took place on June 19, 2002. Before undergoing surgery, Plaintiff contacted Kipp Company and obtained precertification for the procedure as required under the terms of the Plan.
Defendant initially paid Plaintiff's medical bills related to his back surgery. On November 25, 2002, Candace Trotter, Human Resources Manager for VPI, emailed Mary Sandstrom at Kipp Company as follows:
I noticed we're being hit pretty heavily for some Cobra claims on Ken Olcott. Ron reminded me that last time he had a big injury it was due to some kind of eastern influence fighting he was doing (like karate or something, but not that). So we were wondering if there were any possibility that these claims were for similar sorts of things and if so if they could be excluded under `dangerous activities.' I assume that the injuries have been investigated to make sure they are indeed our responsibility? Any reassurance you can offer?:) Three more months . . .
Injuries incurred while engaging in dangerous sports are excluded from coverage under the VPI Plan.
Jocelyn Wardrum, a claims analyst with Kipp Company, testified she determined Plaintiff's injury was karate-related after she spoke with Trotter on the telephone and, therefore, excluded the injury from coverage. Wardrum thereafter sought reimbursement of payments already made to Plaintiff's medical providers. Wardrum admits she did not look at any medical records before she decided to retract the acceptance of Plaintiff's claim.
The record does not contain any evidence that Kipp Company sent any written notification to Plaintiff regarding the retraction of its earlier claim acceptance. Defendant, however, admits it sought reimbursement of previously paid medical bills on the basis that the surgery was excluded because it was allegedly caused by martial arts activity.
When Plaintiff discovered Kipp Company was seeking reimbursement of his surgical expenses, Plaintiff called Wardrum and told her that his back injury was not a result of martialarts activity. Defendant now admits its decision to seek reimbursement of Plaintiff's surgical expenses based on the purported relationship to martial-arts activities was a mistake.
After speaking with Plaintiff and deciding the injury was not related to martial arts activity, Wardrum decided to obtain Plaintiff's medical records. After reviewing Dr. Rohrer's records, however, Kipp Co. ultimately denied Plaintiff's claim for medical expenses by letter dated January 31, 2003. In the letter, Wardrum asserted Plaintiff's claim was denied because the injury occurred in the course of his employment. The Plan provides benefits will not be paid for "any illness or bodily injury which occurs in the course of employment."
Wardrum and Sandstrom both testified the denial was based on "medical chart notes." It appears from the record, however, that Defendant based its denial on the June 14, 2002, neurosurgical consultation report of Dr. Rohrer because the record does not contain any pre-2003 chart notes from Dr. Rohrer. The record also does not contain any evidence that Defendant or Kipp Company interviewed Plaintiff regarding the circumstances of his injury or contacted Dr. Rohrer or any other physician to determine the circumstances of Plaintiff's back injury.
In support of its ultimate decision to deny Plaintiff's claim, Defendant contends Plaintiff injured his back while working at his home-based business. Although it is undisputed that Plaintiff's injury occurred at his home when he attempted to move a 500-pound hydraulic table in his shop, Plaintiff contends the injury occurred on a weekend when he tried to move the table to make room in his shop for a tractor that Plaintiff had been using in his yard. Plaintiff admits the hydraulic table is used in his home business, but he asserts his injury was not related to that business because he was not working when he moved it. Other than Dr. Rohrer's June 14, 2002, report, the record does not contain any evidence to controvert Plaintiff's account of the circumstances of his injury.
By letter dated February 11, 2003, Plaintiff requested review of Defendant's January 31 denial of his claim. Plaintiff also asked VPI to provide him with copies of documents regarding his claim. Plaintiff also stated in the letter that his injury was not related to his employment and provided an affidavit explaining the circumstances of the injury. On February 28, 2003, Plaintiff provided Defendant with a chart note from Dr. Rohrer dated February 18, 2003. In the chart note, Dr. Rohrer states "further information regarding his injury was obtained today. Apparently Mr. Olcott was not working at the time of his injury. He states that he and a friend were moving his hydraulic tilt table on a weekend so that he could get his tractor in and out of his garage to do some work on his property. That is when he had his injury and it was not directly workrelated although it was in his shop."
On March 17, 2003, Mary Sandstrom wrote to Plaintiff and informed him the Plan's sponsor would be out of the country until April and Defendant would respond to Plaintiff's appeal when the sponsor returned. The sponsor referenced in this letter was Robert Stevens, President of VPI, who was out of the country until the first of April.
On March 24, 2003, Plaintiff wrote to Sandstrom and advised her that she had failed to timely respond to his appeal in violation of the terms of the Plan. The Plan provides a beneficiary will be notified of the Plan's decision on a request for review within 30 days after receipt of the request.
By letter dated April 23, 2003, Defendant informed Plaintiff that it was upholding the denial of his claim. Plaintiff timely appealed this denial. On June 17, 2003, Defendant denied this appeal as well.
The introductory page of the Vision Plastics Inc. Healthcare Plan includes the following statement:
The Plan and Claims Administrators, as applicable, shall have full power and authority to control and manage the operation and administration of the Plan and to construe and apply all of its provisions including the specific power and authority to interpret the Plan, remedy or resolve ambiguities, inconsistencies or omissions. This specifically includes the power to decide any eligibility and the approval of benefits under the Plan. Any action taken in good faith by the Plan or Claims Administrators in the exercise of authority conferred by the Plan shall be conclusive and binding upon the participants and the beneficiaries.
In addition, page 33 of the Plan includes the following statement: "The Plan Administrator retains sole and final discretion for interpreting the terms and conditions of this Plan Document."
DISCUSSION
I. Standard of Review Under ERISA
When an ERISA plan provides the plan administrator with discretionary authority to determine benefit eligibility, the district court ordinarily reviews the plan administrator's decision to grant or to deny benefits for an abuse of discretion. Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). When the plan does not confer such authority unambiguously, the court reviews the plan administrator's decision de novo. Kearney v. Standard Ins. Co., 175 F.3d 1085, 1095 (9th Cir.), cert. denied, 528 U.S. 964 (1999).
Under a review for abuse of discretion, the court must determine whether the plan administrator construed provisions in a way that conflicts with the plain language of the plan. Bendixen v. Standard Ins. Co., 185 F.3d 935, 944 (9th Cir. 1999). The court will uphold a plan administrator's interpretation of plan terms unless the interpretation is arbitrary and not grounded on any reasonable basis. Horan v. Kaiser Steel Ret. Plan, 947 F.2d 1412, 1417 (1991). The doctrine of contra proferentum does not apply to a court's review based on abuse of discretion. Winters v. LTD Plan, 125 F.3d at 799.
The doctrine of contra proferentum provides ambiguities in insurance contracts must be construed against the insurer. As noted in Kunin v. Benefit Trust Life Insurance Company, the rule applies to ERISA insurance policies. 910 F.2d 534, 539-40 (9th Cir. 1990). "The rule is followed in all fifty states and the District of Columbia and with good reason. [Because insurance policies are drafted by insurance specialists,] the insurer should be expected to set forth any limitations on its liability clearly enough for a common layperson to understand" Id.
As noted, unless an ERISA plan "unambiguously . . . [provides] in sum and substance that the Plan Administrator or fiduciary has authority, power, or discretion to determine eligibility or to construe the terms of the Plan, the standard of review will be de novo." Sandy v. Reliance Standard Life Ins. Co., 222 F.3d 1202, 1207 (9th Cir. 2000). Even where the plan provides an unambiguous grant of discretion to the administrator, however, a heightened standard of review may be required by the presence of a conflict of interest. Bendixen, 185 F.3d at 943. The Supreme Court has held that a conflict of interest is "one factor that must be weighed in determining whether there was an abuse of discretion." Firestone, 489 U.S. at 115.
The Ninth Circuit has held an apparent conflict is present when a plan administrator is responsible for both funding and paying claims. See Lang v. Long-Term Disability Plan of Sponsor Applied Remote Tech., Inc., 125 F.3d 794, 798 (9th Cir. 1997). See also Bendixen, 185 F.3d at 943-44. Only a serious conflict, however, will require heightened scrutiny. Atwood v. Newmont Gold Co., Inc., 45 F.3d 1317, 1322-23 (9th Cir. 1995). Atwood sets forth a two-tiered test:
The `less deferential' standard under which we review apparently conflicted fiduciaries has two steps. First, we must determine whether the affected beneficiary has provided material, probative evidence, beyond the mere fact of the apparent conflict, tending to show that the fiduciary's self-interest caused a breach of the administrator's fiduciary obligations to the beneficiary. If not, we apply our traditional abuse of discretion review.Id. at 1323.
If the beneficiary comes forward with the required material evidence, the burden of proof shifts to the plan administrator to produce evidence that the apparent conflict of interest did not affect its decision to deny benefits. McDaniel v. The Chevron Corp., 203 F.3d 1099, 1108 (9th Cir. 2000). "If the plan fails to carry its burden . . ., our review becomes de novo, without deference to the administrator's tainted exercise of discretion." Lang v. Long-Term Disability Plan of Sponsor Applied Remote Tech., Inc., 125 F.3d 794, 798 (9th Cir. 1997).
Under a de novo review standard, the court construes terms in ERISA plans like any contractual provision "without deferring to either party's interpretation." Id. at 112. "The terms of trusts created by written instruments are `determined by the provisions of the instrument as interpreted in light of all the circumstances and such other evidence of the intention of the settlor with respect to the trust as is not inadmissible.'" Id. (citing Restatement (Second) of Trusts § 4 cmt. c (1959)). In addition, the rules ordinarily associated with the interpretation of insurance policies apply. Winters v. LTD Plan, 125 F.3d 794, 799 (9th Cir. 1997). Accordingly, the doctrine of contra proferentum requires the court to construe ambiguities against the plan administrator. Id.
II. Review of Defendant's Denial of Benefits is De Novo.
Defendant contends the Court must review its denial of benefits for abuse of discretion because the Plan unambiguously grants the appropriate discretionary authority to both the Claims Administrator and the Plan Administrator. Defendant relies on both the introductory page of the Plan document and the language in the Plan that provides "[t]he Plan Administrator retains sole and final discretion for interpreting the terms and conditions of this Plan Document."
Although Plaintiff admits in his Concise Statement of Facts that VPI "is the plan administrator and has discretionary authority, along with the claims administrator, to approve or deny health care benefits under the plan," Plaintiff argues in his briefs that the terms of the Plan are not sufficiently clear to confer discretionary authority on the Plan Administrator.
The Ninth Circuit has held language nearly identical to the VPI Plan was sufficient to grant discretion to a plan administrator. See McDaniel v. Chevron Corp., 203 F.3d 1099, 1107 (9th Cir. 2000) ("[Plan administrator has] sole discretion to interpret the terms of the Plan."). In light of McDaniel, and after reviewing the record, the Court finds the Plan unambiguously confers discretionary authority on the Plan Administrator.
Plaintiff, however, also argues even if the plan is sufficient to warrant review for abuse of discretion, heightened scrutiny is required because Defendant was both decision-maker and insurer on the policy and, therefore, its decision-making process was tainted by the conflict of interest. Defendant admits an inherent conflict exists because it is both the Plan Administrator and the payor under the Plan. Defendant, however, contends Plaintiff has not presented sufficient probative evidence to show the conflict caused a breach of Defendant's fiduciary duty to Plaintiff.
To trigger de novo review of Defendant's decision, Plaintiff had the burden to provide sufficient probative, material evidence that Defendant may have breached its fiduciary duty by acting in its own self-interest. The Ninth Circuit has held inconsistencies in the reasons given for a claim denial may constitute sufficient evidence to satisfy this requirement. Lang, 125 F.3d at 798-99.
In this case, the inconsistencies in Defendant's position are abundant. It is undisputed that Defendant initially accepted Plaintiff's claim and paid the medical bills for his back surgery. Months later, after a comment from VPI that it was "being hit pretty heavily for some Cobra claims on Ken Olcott," Defendant, without any additional investigation or new evidence, decided Plaintiff's injury was due to a martial arts activity, rescinded its acceptance of Plaintiff's claim, and sought reimbursement for payments it had already made. This abrupt change in Defendant's position resulted from nothing more than the VPI human resources manager's suggestion that Plaintiff had engaged in some kind of martial-arts activity in the past.
After Plaintiff explained to Defendant that his injury was not a result of martial-arts activity, Defendant decided to look at medical records relating to Plaintiff's surgery apparently for the first time. Defendant asserts it then denied Plaintiff's claim based on the work-related-injury exclusion after reviewing "chart notes." From the record, however, it appears Defendant relied solely on the June 14, 2002, report from Dr. Rohrer, which predates Plaintiff's surgery and presumably was available to Defendant when it initially decided to pay for Plaintiff's surgery. In addition, Defendant does not offer any explanation for its failure to consider Dr. Rohrer's June 14, 2002, report when it made its initial claim decision. The Court concludes these inconsistencies constitute material, probative evidence that Defendant's decision to deny Plaintiff's claim was affected by self-interest.
The burden, therefore, shifts to Defendant to show its decision to deny Plaintiff's claim was, in fact, in furtherance of its fiduciary obligations. See Atwood, 45 F.2d at 1323. Defendant, however, does not offer any evidence that its decision was made for the benefit of other Plan participants and/or beneficiaries.
Based on this record, the Court concludes Defendant's final decision to deny Plaintiff's claim for benefits related to his back surgery on the basis that Plaintiff's injury was work related is not entitled to deference and is subject to de novo review.
III. Plaintiff Is Entitled to Payment of Benefits
The following facts are uncontroverted. Plaintiff operates a home business. Plaintiff injured himself while attempting to move a 500-pound hydraulic table in his shop, which is located at his home. The injury occurred on a weekend when Plaintiff was trying to move the table to make room for a tractor that Plaintiff uses in his yard. Although the hydraulic table is used in Plaintiff's home business, the tractor is not.
Although Defendant denies some of these facts, it has not presented any evidence to controvert them. The Court, therefore, accepts them as true for purposes of these Motions.
As noted, the Plan provides benefits will not be paid for "any illness or bodily injury which occurs in the course of employment." Plaintiff contends the exclusion does not apply because he was not working in his home business when the injury occurred, the injury did not occur during regular work hours, and moving the table was not for the benefit of his business. Defendant contends Plaintiff's injury fits within the exclusion because it resulted from "a risk associated with the conditions maintained by his employer, which is Mr. Olcott's home business operations." Plaintiff and Defendant each present reasonable interpretations of the phrase "bodily injury which occurs in the course of employment." The language of the Plan, therefore, is ambiguous.
Both parties rely on case law interpreting Oregon workers' compensation statutes to support their interpretation of the VPI Plan language. Defendant relies primarily on Leo Polehn Orchards v. Hernandez, 122 Or. App. 241, rev. denied, 318 Or. 97 (1993). In Leo Polehn, a migrant worker who lived in a farm labor camp provided by the employer slipped and fell while walking from the outdoor toilet to the workers' living quarters. The Oregon Court of Appeals held the "bunkhouse rule" required a finding that the plaintiff's injury was compensable.
When an employee is required to live on the employer's premises and is injured as a result of the condition in which the employer maintains those premises, there is a sufficient connection between injury and employment to establish compensability. Whether the resident is continuously on call is not determinative. It is the obligation of employment to reside on the premises that subjects the employee to the risk that resulted in the injury.Id. at 246.
Under Oregon workers' compensation statutes, a "compensable injury" is one "arising out of and in the course of employment." Or. Rev. Stat. § 656.005(7)(a).
[I]n order for an injury to be compensable, it must both occur in the course of the claimant's covered employment and arise out of that employment. The requirement that the injury occur in the course of employment concerns the time, place and circumstances of the injury; the requirement that it arise out of employment requires a causal link between the injury and the employment. Although stated separately, those requirements are two prongs of what is in fact a single workconnection inquiry.McTaggart v. Time Warner Cable, 170 Or. App. 491, 494 (2000).
In contrast to the workers' compensation statutes, the VPI Plan has no "arising out of" requirement. The exclusion applies only to injuries sustained "in the course of employment." The two-pronged, work-connection test under the workers' compensation statutes, therefore, does not assist the Court in analyzing the VPI Plan language. The Court, therefore, does not find particularly helpful the workers' compensation cases cited by the parties.
If the Court accorded Defendant's interpretation of the Plan the deference ordinarily due a plan administrator vested with discretion to interpret a plan, the Court would be required to uphold Defendant's interpretation as reasonable. Here, however, Defendant is not entitled to such deference because Plaintiff satisfied his burden to show the decision was tainted by Defendant's conflict of interest, and Defendant has not rebutted it.
Accordingly, the Court construes the Plan "in accordance with the rules normally applied to insurance policies. Ambiguities in ordinary insurance contracts are construed against the insurance company." Lang, 125 F.3d at 799. The Court, therefore, adopts the reasonable interpretation advanced by Plaintiff; i.e., that the phrase "in the course of employment" does not include injuries sustained when engaged in an activity that occurs outside regular work hours and is not for the benefit of the business. Based on the record, the Court concludes Plaintiff was injured while moving a piece of equipment for personal rather than for business purposes. The Court holds, therefore, Plaintiff's injury is not excluded from coverage under the VPI Plan. Accordingly, the Court reverses Defendant's denial of Plaintiff's claim. The Court also finds Plaintiff is entitled to reasonable attorneys' fees and costs under 29 U.S.C. § 1132(g).
Under a de novo standard, the court construes terms in ERISA plans like any contractual provision "without deferring to either party's interpretation." Id. at 112. "The terms of trusts created by written instruments are `determined by the provisions of the instrument as interpreted in light of all the circumstances and such other evidence of the intention of the settlor with respect to the trust as is not inadmissible.'" Id. (citing Restatement (Second) of Trusts § 4 cmt. c (1959)). Under de novo review, the rules ordinarily associated with the interpretation of insurance policies apply. Winters v. LTD Plan, 125 F.3d 794, 799 (9th Cir. 1997). Accordingly, the doctrine of contra proferentum requires the court to construe ambiguities against the plan administrator. Id.
IV. Relief
Neither party addressed in any detail the appropriate form of relief under ERISA or in the event the administrator's decision was not upheld.
On this record, it is not clear what benefits may be due Plaintiff. The Court, therefore, directs the parties to confer regarding the appropriate relief to which Plaintiff now is entitled. The parties shall submit to this Court a joint detailed recommendation and, if appropriate, a calculation of benefits that are now due, award no later than August 6, 2004. The parties also shall confer and attempt to reach agreement concerning the amount of reasonable attorneys' fees and costs. If the parties agree on such sums, they should include their recommendations in their joint statement. If no agreement can be reached as to attorneys' fees and costs, Plaintiff's counsel must file a petition to recover same no later than August 31, 2004.
CONCLUSION
For these reasons, the Court GRANTS Plaintiff's Motion for Summary Judgment (#28) and DENIES Defendant's [Cross] Motion for Summary Judgment (#37). Accordingly, the court REVERSES Defendant's denial of Plaintiff's claim for medical expenses.
IT IS SO ORDERED.