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Joel S. v. Cigna

United States District Court, D. Utah

December 3, 2018

Joel S. et al., Plaintiffs,
Cigna et al., Defendants.



         Before the court is Plaintiffs the S Family's Motion for Summary Judgment of this ERISA action. (ECF No. 27.) The S Family contends that Cigna improperly denied coverage for two different periods of S.S.'s psychiatric treatment. Defendants respond that this court owes deference to Cigna and that the denials were within Cigna's discretion. The court heard oral argument on the motion on May 24, 2018. Having fully considered the briefing, hearing oral argument, and being otherwise fully informed, the court DENIES the S Family's Motion for the reasons stated herein.


         This action involves Cigna's denial of insurance coverage for the psychiatric treatment of S.S., a minor. During the relevant time, New Orleans-Baton Rouge Steamship Pilots Association Plan ("the Plan"), a self-funded plan that Cigna administered, insured S.S.'s father, Joel S., and his dependents. (Motion 3, ECF No. 27.) The Plan provides coverage for healthcare services deemed "medically necessary," as defined in the Plan. (Id.) Cigna has discretion to administer the Plan, including making coverage decisions. (Id.) The Plan also provides for claimants to seek independent review from a Plan designated Independent Review Organization (IRO) if Cigna denies both the claim and the appeal. (Sealed Record 42.)

         At the age of sixteen, S.S.'s outpatient treating physician referred her to Menninger Clinic for acute inpatient psychiatric hospitalization after a suicide attempt. (Id. at 9.) She had previously been in outpatient therapy for depression, anxiety, and ADHD. (Id. at 7-8.) S.S. was treated at Menninger from October 2, 2013 to November 1, 2013. (Id. at 9, 12.) She then went to Solstice Residential Treatment Facility, where she received residential treatment from November 5, 2013 to May 30, 2014. (Id. at 11.) Cigna covered S.S.'s treatment at Menninger from October 2 to October 10, but it denied coverage for the remainder of her treatment, including her entire stay at Solstice, as not medically necessary. (Id. at 319 & 724.) S.S., through her parents, unsuccessfully internally appealed Cigna's denials and sought review from an independent reviewer. (Motion 12-18, ECF No. 27; Sealed Record 278 & 682.) The independent reviewer, MCMC, concluded the treatment was not medically necessary, so Cigna again denied coverage. (Motion 17-18, ECF No. 27.)

         The S Family now seeks this court's review. It first asserts that the court should review the claim denials de novo because Cigna violated its fiduciary obligations under the Plan by failing to follow claim procedures set out in the ERISA regulations. (Motion 18-27, ECF No. 27.) It next contends that Cigna improperly decided its claims and that the Plan entitles it to compensation for the entirety of S.S.'s time at Menninger and Solstice. (Id. 28-39.) Finally, the S Family argues it is entitled to recover prejudgment interest on the amount of recovery and to attorney fees and costs associated with this litigation. (Id. 39-45.)


         I. Standard of Review

         Relying on trust principles, the Supreme Court announced in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989), that the court in an ERISA action is to review the denial of benefits "under a de novo standard, unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan," id. at 115. "If the plan does explicitly confer discretionary authority on an administrator with so-called Firestone language," the court "must review benefit determinations under an 'arbitrary and capricious' standard." Geddes v. United Staffing All. Emp. Med. Plan, U.S.A., 469 F.3d 919, 923 (10th Cir. 2006).

         Here, the Plan confers "discretionary authority" on Cigna, acting as the Plan Administrator, "to determine eligibility and to interpret the Plan." (Sealed Record 6.) Cigna has "the discretionary authority to determine whether a claim should be paid or denied on appeal and according to the Plan provisions." (Id.) And the parties agree that, given this discretion, ordinarily the court would conduct an arbitrary and capricious review, asking whether the coverage denials are supported by substantial evidence.[2] Gaither v. Aetna Life Ins. Co., 394 F.3d 792, 801 (10th Cir. 2004) (citing Firestone, 489 U.S. at 115).

         But the S Family argues that Cigna's review process was marked by various procedural irregularities and, relying upon the Second Circuit Court of Appeals analysis in Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016), that the appropriate standard of review is therefore de novo. In Halo, the Second Circuit concluded that under established trust principles a trustee is not entitled to deference if it fails to uphold the applicable standard of care, which the Court determined was defined by the ERISA regulations set out in 29 C.F.R. § 250.503-1 as amended in 2002. 819 F.3d at 52. Therefore, the court looked to the 2002 ERISA regulations and the accompanying Preamble, which states that de novo review applies if the Plan administrator violates the regulations no matter how minor or substantial the violation, and concluded that because § 250.503-1(1) ("Subsection (1)") of the regulations is ambiguous, the Preamble's interpretation of Subsection (1) merits Auer deference. Id. at 53-54. In light of the Preamble, the Halo court concluded that failure to comply with any part of the regulations triggers de novo review, except when the administrator can show that the irregularities were inadvertent and harmless. Id. at 53-54, 58.

         The Tenth Circuit addressed the impact of procedural irregularities on judicial review in Gilbertson v. Allied Signal Inc., 328 F.3d 625 (10th Cir. 2003). In Gilbertson, the Tenth Circuit applied the 1977 version of the ERISA regulations and concluded that, when a plan administrator fails to exercise its discretion by, for example, failing to render a timely decision, the claim is deemed denied and the district court owes no deference to the administrator. Id. at 630-31. But the court went on to explain that a plan administrator may be spared this rigorous standard if it substantially complied with the regulations. Id. at 634-35. The Tenth Circuit has not decided whether the promulgation of the 2002 ERISA regulations affects its substantial compliance analysis under Gilbertson[3] Instead, the Court has repeatedly reserved that issue. See, e.g., Hancock v. Metro. Life Ins., 590 F.3d 1141, 1152 n.3 (10th Cir. 2009) ("Because Ms. Hancock has failed to show any noncompliance, we need not consider whether substantial compliance is sufficient under the January 2002 revisions of ERISA."); LaAsmar v. Phelps Dodge Corp. Life, Accidental Death & Dismemberment and Dependent Life Ins., 605 F.3d 789, 800 (10th Cir. 2010) ("We need not decide whether that 'substantial compliance' doctrine still applies to . . . 29 C.F.R. § 2560.503-1, because even assuming it does apply, MetLife did not substantially comply here with ERISA's requirement of a timely resolution of an administrative appeal."). Therefore, this court must determine the effect a procedural irregularity should have under the new regulations, including whether to follow Halo. To decide this, the court first looks to the regulations.

         In the 2002 ERISA regulations, which govern this case, the Department of Labor passed the following rule:

(1) Failure to establish and follow reasonable claims procedures. In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

29 C.F.R. § 250.503-1(1). Although Subsection (1) is silent on the issue of standard of review, the Preamble explains that "[t]he Department's intentions in including this provision in the proposal were to clarify that the procedural minimums of the regulation are essential to procedural fairness and that a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference." Employee Retirement Income Security Act of 1974; Rules and Regulations for Administration and Enforcement; Claims Procedure, 65 Fed. Reg. 70, 246, 70, 255 (November 21, 2000) (codified at 29 C.F.R. § 250.503-1). Although many commenters advocated "a standard of good faith compliance as the measure for requiring administrative exhaustion, ... the Department. . . determined to retain" the provision as proposed. Id. at 70, 255-56.

         The Halo court concluded that the Department of Labor's interpretation set forth in the Preamble merits deference under Auer v. Robbins, 519 U.S. 452 (1997), because it concluded that the language of Subsection (1) is ambiguous. Halo, 819 F.3d at 53. The court acknowledged that "Subsection (/)... says nothing about standards of review;" nevertheless, it concluded an ambiguity exists because Subsection (1) "could be reasonably read as incorporating the logic of Firestone and its progeny that a claim is subject to de novo review if it is 'deemed denied,' the effective equivalent of being deemed exhausted under the 2000 regulation." Id. at 54. Halo further concluded that the substantial compliance doctrine "is flatly inconsistent with the 2000 regulation" because the Preamble indicates that the Department of Labor considered and rejected such an exception when it adopted the new regulations. Id. Nevertheless, the court concluded it was necessary, "[t]o prevent the exception from swallowing the rule," to allow the plan administrator to demonstrate it had "established procedures in full conformity with the regulation and . . . show that its failure to comply with the claims-procedure regulation in the processing of a particular claim was inadvertent and harmless." Id. at 58 (emphasis in original). In which case, the plan would receive deference.

         But under Tenth Circuit precedent, this court owes the Preamble no deference. Subsection (1) does not address the question of standard of review, and the Second Circuit's finding that Auer governed depends upon a finding of ambiguity that is inconsistent with the Tenth Circuit's guidance on regulatory interpretation. Auer requires the court to defer to an agency's interpretation of its own regulation unless the interpretation is '"plainly erroneous or inconsistent with the regulation.'" Auer, 519U.S. at 461 (quoting Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359 (1989)). But "Auer deference is warranted only when the language of the regulation is ambiguous." Christensen v. Harris Cnty., 529 U.S. 576, 588 (2000). As the Tenth Circuit said in Mitchell v. Commissioner of Internal Revenue,

In interpreting the relevant regulations, we apply the same rules we use to interpret statutes. We begin by examining the plain language of the text, giving each word its ordinary and customary meaning. If, after engaging in this textual analysis, the meaning of the regulations is clear, our analysis is at an end, and we must enforce the regulations in accordance with their plain meaning.

775 F.3d 1243, 1249 (10th Cir. 2015) (internal citations omitted). Only if "the meaning of the regulations is not plain," will the court "defer to [the agency's] reasonable interpretations" that are neither '"plainly erroneous [n]or inconsistent with the regulations.'" Id. (quoting Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 208 (2011)). This process is necessary because deference to an agency interpretation of an unambiguous regulation "would . . . permit the agency, under the guise of interpreting a regulation, to create de facto a new regulation" without going through notice and comment. Christensen, 529 U.S. at 588.

         "A regulation is 'ambiguous if it is reasonably susceptible to more than one interpretation or capable of being understood in two or more possible senses or ways.'" Jake's Fireworks Inc. v. Acosta, 893 F.3d 1248, 1261 (10th Cir. 2018). The regulation here is susceptible to only one meaning: when the plan or its administrator fails to provide for or follow its own procedures in compliance with the regulations, the claim is exhausted, allowing the claimant to seek judicial review or any other available remedy. See Kohut v. Hartford Life and Ace. Ins. Co., 710 F.Supp.2d 1139, 1145 (D. Colo. 2008) ("The regulation does not purport to state a standard of review under which such an action will be governed. Accordingly, because [Subsection (1)] is not ambiguous on the question of the proper standard of review that applies in this case-indeed, the regulation does not speak to this issue at all-the agency's explanatory language on this point is entitled to no judicial deference."). Subsection (1) simply provides a route to judicial review when the plan fails to comply with ERISA and its regulations.

         While the question of what standard of review the district court should apply may remain, silence on a matter about which interested parties may be curious is not in and of itself an ambiguity. See Boxell v. Plan for Group Ins. Of Verizon Commc 'ns, Inc., No. 1:13-cv-89, 2013 WL 5230240, at *3 (N.D. Ind. Sept. 16, 2013) ("The regulation does not allude to a second consequence and to interpret otherwise is not a permissible construction of the regulation."); Goldman v. Hartford Life and Accident Ins. Co., 417 F.Supp.2d 788, 804 (E.D. La. 2006) ("Unlike Auer, however, this case does not involve ambiguity in the terms of a regulation. Rather, the amended [Subsection (1)] simply does not speak to the issue of the standard of review, and, accordingly Auer does not require deference to the Department's position in this case."). Rather, it appears the agency omitted a potentially controversial policy from the proposed rule, then set forth that policy in the Preamble without notice and comment. See Christensen, 529 U.S. at 588; see also Seger v. Reliastar Life, No. 3:04-cv-16, 2005 WL 2249905, at *8-*9 (N.D. Fla. Sept. 14, 2005) (concluding that court did not owe Chevron deference to the Preamble because the agency exceeded the scope of its mandate in seeking to "bootstrap itself into" regulating judicial power, "an area in which it has no jurisdiction"). Because Subsection (1) is not ambiguous, the court owes no deference to the Preamble[4] and does not apply Halo[5] Having reached this conclusion, the court must now determine what standard of review applies under existing Tenth Circuit precedent.

         The Supreme Court has consistently affirmed the deferential standard of review for administrators whose plans assign them discretion, without acknowledging an exception for cases involving procedural irregularities. James v. Int'l Painters and Allied Trades Indus., 738 F.3d 282, 283 (5th Cir. 2013) (per curiam) ("[T]he Supreme Court has never suggested the standard of review applied to ERISA administrators' benefits determinations should change because of procedural irregularity."). The Supreme Court has affirmed that Firestone "set out a broad standard of deference without any suggestion that the standard was susceptible to ad hoc exceptions." Conkright v. Frommert, 559 U.S. 506, 513 (2010). And it has further stated that "it is not necessary or desirable for courts to create special burden-of-proof rules, or other special procedural or evidentiary rules, focused narrowly upon" a single factor. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 116 (2008). As such, the Supreme Court has reversed decisions from lower courts that created new exceptions to the Firestone standard in cases involving "a systemic conflict of interest," Conkright, 559 U.S. at 513 (discussing Metro. Life Ins. Co., 554 U.S. 105), and involving "a single honest mistake in plan interpretation," id. la Metropolitan Life Insurance v. Glenn, the Supreme Court declined to adopt the exception the Sixth Circuit Court of Appeals had applied because "in practice [it] could bring about near universal review by judges de novo . . . of the lion's share of ERISA plan claims denials." 554 U.S. at 116. It concluded that if Congress was inclined to "such a system of review ... it would not have left to the courts the development of review standards but would have said more on the subject." Id.

         Nevertheless, the Circuit Courts, including the Tenth Circuit have "carved out exceptions to the general rule" for procedural irregularities. Id. at 283. Interpreting Firestone alongside the then-applicable regulations, the Tenth Circuit concluded in Gilbertson that when a decision is deemed denied for failure to comply with the regulations, the administrator's decision merits no deference unless the administrator had substantially complied with the regulations. 328 F.3d at 632, 634-35. Interpreting Firestone in conjunction with the 1977 regulations, the Circuit concluded an administrator whose plan grants it discretion is entitled to deference when it applies its expertise to the review of a claim and is therefore entitled deference only if the administrator actually renders a decision that is "a valid exercise of that discretion." Id. at 631. In the context of delinquent decisions, a claim that is deemed denied because the administrator failed to render a decision is denied as a matter of law, not as a matter of the administrator's discretion. Id. at 632-33 (quoting Gritzer v. CBS, Inc., 275 F.3d 291, 296 (3rd Cir. 2002) ('"[I]t is the trustee's analysis, not his or her right to use discretion or a mere arbitrary denial, to which a court should defer.'").

         But if an administrator with discretion substantially complies with the regulations it is entitled to arbitrary and capricious review despite failing to strictly comply because a "hair-trigger rule" requiring strict compliance "could inhibit collection of useful evidence and create perverse incentives for the parties." 328 F.3d at 634-35. It would "be antithetical to the aims of ERISA. ERISA's procedural regulations are meant to promote accurate, cooperative, and reasonably speedy decision-making, not to generate an endless stream of business for employment lawyers." Id. at 635. Therefore, the Tenth Circuit held that so long as "an ongoing, good faith exchange of information between the administrator and claimant" occurs, "inconsequential violations of the deadlines or other procedural irregularities [do] not entitle the claimant to de novo review." Id. In sum, the Tenth Circuit will apply arbitrary and capricious review as long as the administrator has engaged the claimant in a "meaningful dialogue." Id. Therefore, this court next considers whether Cigna in fact engaged the S Family in a meaningful exchange regarding its claims or if the alleged procedural irregularities necessitate a more stringent review by this court.

         The S Family's claim of procedural irregularities focuses on specific omissions, misstatements, and other communication failures. Efforts to obtain coverage were primarily made by S.S.'s mother, Robin S. First, the S Family asserts Cigna failed to provide access to and copies of relevant documentation upon Robin S.'s request, as the regulations require, see 29 C.F.R. § 2560.503-l(j)(3). (Motion 20-21, ECF No. 27.) After Cigna denied the S Family's claim for residential treatment at Solstice, Robin S. wrote Cigna asking for the denial rates of one of Cigna's reviewing physicians, Dr. Qayyum. The S Family claims it was entitled to Dr. Qayyum's denial rates because Cigna relied upon them in the Solstice denial and because the rates would demonstrate Cigna's compliance with the administrative process and regulations. (Id.) See 29 C.F.R. § 2560.503-l(m)(8). The S Family does not explain how Cigna relied upon Dr. Qayyum's historical record to decide this claim, and the court concludes the rates are not relevant on that basis. The S Family then assumes, without evidence, that denial "at exceptionally high rates" would show that "Cigna was failing to put in place processes and safeguards to ensure that the claim determinations are being made in accordance with the terms of the plan." (Motion 21, ECF No. 27.) But Dr. Qayyum's denial rates would not be proof of noncompliance. Even if the rates suggested a pattern of denial, such a pattern would not exclude the possibility that a review of the relevant medical records would support denials in each case. Without the underlying documents about other patients' health and medical history, to which the S Family is not entitled, the S Family would be reviewing the denial rates in a vacuum and would be unable to draw meaningful conclusions about Cigna's compliance with the regulations from the denial rates. Thus, the requested documents would be unlikely to provide relevant information and there was no qualifying procedural irregularity or failure to substantially comply.

         Second, the S Family argues that Cigna failed to identify which criteria were not met when it denied S.S.'s extended stay at Menninger as not medically necessary and then failed to remedy the omission when Robin S. raised this issue in her appeal of the denial. (Motion 22, ECF No. 45.) In support of this allegation, the S Family cites this court to Robin S.'s letter to MCMC on external review in which she made the same allegations the Family makes here. (Sealed Record 691, 693, & 698.) But Cigna's denial letter contains the information Robin S.'s letter asserts was not provided. It specifies that further acute inpatient treatment was unnecessary because S.S.'s "symptoms were sufficiently stabilized so that [she] could be safely and effectively treated at a less restrictive level of care." (Id. at 837.) The letter also addresses S.S.'s progress in treatment and a lack of family participation and ultimately concludes her continued stay at Menninger "was primarily for the purpose of providing a safe and structured environment." (Id.) These statements correspond directly with the Plan's Guidelines for determining medical necessity, [6] which define "medical necessity" to mean "health care services that a Provider, exercising prudent clinical judgment, would provide to a patient. . . and that are" among other things "[r]endered in the least intensive setting that is appropriate for the delivery of health care." (Id. at 82.) The Guidelines further specify patients are not eligible for continued stay in acute care when their families are not "involved to the best of their ability" or if "continued stay is primarily for the purpose of providing a safe and structured environment." (Id. at 84-85.) Therefore, Cigna's letter explaining the Menninger denial directly addresses the criteria its reviewing physician considered in its denial.

         The S Family also argues Cigna's denial of coverage for S.S.'s continued stay at Menninger did not satisfy 29 C.F.R. § 2560.503-1(h)(2)(iv), which requires the plan or its administrator to "[p]rovide for a review that takes into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information as submitted or considered in the initial benefit determination." The S Family implies through a rhetorical question that Cigna could not have undergone such a review when its denial letter fails to mention the specific ...

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