The Ninth Circuit has reversed a federal trial court’s ruling that a large insurer breached its fiduciary duty to health plan participants by using overly restrictive guidelines for administering claims. Participants in a class action lawsuit brought claims for breach of fiduciary duty and arbitrary and capricious denial of benefits under ERISA, alleging that they were improperly denied benefits for treatment of mental health and substance use disorders because the insurer’s claim guidelines did not comply with the terms of their insurance policies, which provided for coverage consistent with generally accepted standards of care (GASC). The trial court agreed that the insurer’s review criteria deviated from GASC, holding that the insurer’s development of and adherence to unreasonable claim guidelines amounted to both a breach of fiduciary duty and an arbitrary and capricious denial of benefits (see our Checkpoint article). Citing “pervasive and long-standing violations of ERISA,” the trial court ordered the insurer to reprocess 67,000 denied claims and follow independent claim guidelines rather than its internal guidelines (see our Checkpoint article).
On appeal, the Ninth Circuit concluded that the trial court had misapplied the deferential standard of review (afforded to administrators with discretionary authority to interpret the plan’s terms) by substituting its own interpretation of the plans for the insurer’s instead of reviewing the insurer’s decisions for an abuse of discretion. The appellate court held that the insurer’s interpretation—that the plans do not require consistency with GASC—was not unreasonable. The court pointed out that the plans excluded coverage for treatment “inconsistent” with GASC, but that the participants had not shown that the plans mandated coverage for all treatment consistent with GASC. The court added that even if the insurer had a conflict of interest because it served as plan administrator and insurer for insured plans that are the main source of its revenue, this would not change the outcome on these facts.
EBIA Comment: This short decision may have far-reaching implications for plans and insurers involved in litigation over behavioral health claim denials. It may also prompt advocates for individuals with mental health and substance use disorders to try other approaches in the courts. In the meantime, sponsors of both insured and self-insured health plans may want to consult with their insurers and administrators about their plans’ application of GASC to behavioral health claims. For more information, see EBIA’s ERISA Compliance manual at Section XXVIII (“Fiduciary Duties Under ERISA”). See also EBIA’s Self-Insured Health Plans manual at Section XXIII (“Selecting, Engaging, and Monitoring Service Providers”) and EBIA’s Group Health Plan Mandates manual at Section IX (“Mental Health Parity”).
Contributing Editors: EBIA Staff.