In Pacific Shores Hospital v. United Behavioral Health, No. 12-55210 (9th Cir. 2014), an employee of Wells Fargo, referred to as Jane Jones or “Jones”, was covered under the Wells Fargo & Company Health Plan (the “Plan”). United Behavioral Health (“UBH”) is a third-party claims administrator of the Plan. Jones was admitted to Pacific Shores Hospital (“PSH”) for acute inpatient treatment for severe anorexia nervosa. UBH refused to pay for more than three weeks of inpatient hospital treatment. UBH based its refusal in substantial part on mischaracterizations of Jones’s medical history and condition. PSH continued to provide inpatient treatment to Jones after UBH refused to pay. Jones assigned to PSH her rights to payment under the Plan. PSH sued the Plan and UBH, seeking payment for the additional days of inpatient treatment. The district court upheld UBH’s decision to pay for no more than three weeks of treatment, and Jones appealed.
In analyzing the case, the Ninth Circuit Court of Appeals (the “Court”) concluded that UBH abused its discretion in deciding to pay for these days of treatment, and therefore reversed the district court’s holding. Why this conclusion?
The Court determined that UBH’s decision to deny the payment is entitled to review under the arbitrary and capricious standard, and therefore should be overturned by a court only upon a finding of abuse of discretion. Further, it said that, in reviewing for abuse of discretion, we consider all of the relevant circumstances in evaluating the decision of the claims administrator. The claims administrator abuses its discretion if it renders a decision without any explanation, construes provisions of the plan in a way that conflicts with the plain language of the plan, or fails to develop facts necessary to its determination. The court must be left with a definite and firm conviction that a mistake has been committed.
The Court continued by saying that, as claims administrator, UBH owed a fiduciary duty to Jones under ERISA, to act in Jones’ best interest and for the purpose of providing benefits to her, and to act as a prudent man. Here, UBH fell far short of fulfilling its fiduciary duty to Jones. Dr. Zucker, UBH’s primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH’s final decisionmaker, stated that he arrived at his decision to deny benefits “after fully investigating the substance of the appeal.” He then rubberstamped Dr. Center’s conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors we have described. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted.