Alexandra H. v. Oxford Health Insurance Inc. Freedom Access Plan

Case: 15-11513 Date Filed: 08/16/2016 Page: 1 of 38

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
________________________

No. 15-11513
________________________

D.C. Docket No. 1:11-cv-23948-FAM

ALEXANDRA H.,

Plaintiff - Appellant,

versus

OXFORD HEALTH INSURANCE INC. FREEDOM ACCESS PLAN,

Defendant,

OXFORD HEALTH INSURANCE, INC.,

Defendant - Appellee.

________________________

Appeal from the United States District Court
for the Southern District of Florida
________________________

(August 16, 2016)
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Before HULL, JULIE CARNES, and CLEVENGER, * Circuit Judges.

CLEVENGER, Circuit Judge:

Plaintiff Alexandra H. appeals from the district court’s grant of Defendant

Oxford Health Insurance, Inc.’s motion for summary judgment on Alexandra’s

claim under the Employee Retirement Income Security Act of 1974, 259 U.S.C.

§ 1001 (“ERISA”). Alexandra sought benefits for continued partial hospital

treatment for her anorexia, which were denied on the ground that the level of care

she sought was not medically necessary. After her claim was initially denied

through internal reviews by Oxford, she sought and obtained further review

through an external process provided by the insurance contract between her

employer and Oxford, of which she is a beneficiary. When the external review

proved adverse to her claim, she initiated her ERISA suit in the district court.

Alexandra argues that the district court erred in holding that she is barred

from litigating the issue of medical necessity in her ERISA case on the ground that

the adverse external review of her medical necessity claim already and finally

decided the issue against her. She challenges the district court’s decision on several

grounds. First, she asserts that the record of the external review should be excluded

from the ERISA proceedings. Second, she argues that the contract in suit must be

interpreted pursuant to choice of law stated in the contract (New York), and that
*
Honorable Raymond C. Clevenger III, United States Circuit Judge for the Court of Appeals for
the Federal Circuit, sitting by designation.

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under New York law, the adverse external review decision is not binding on the

medical necessity issue in her ERISA case. And third, she contends that if the

record of the external review is properly in the record before the ERISA court, and

if the result of the external review is deemed to bar her ERISA remedy, then the

external review process is preempted by ERISA, with the effect of the preemption

being that she may proceed with her ERISA case in district court as if the external

review had not occurred.

Understandably, Oxford maintains that the record of the external review

should be before the ERISA court, that the adverse decision of the external review

should preclude further litigation of the medical necessity issue in the ERISA case,

and that the external review process if thusly enforced in the district court is not

preempted by ERISA.

Common in ERISA appeals, the answers to the questions presented can be

found by interpreting the contract that creates the relationships of the parties.

Sometimes, the interpretation process is simple and direct. In other cases, such as

this one, the interpretation process is more complex.

After careful consideration of the parties’ briefs, the record in the case, and

with the benefit of oral argument presented to the court, we conclude that the

district court correctly decided that the record of the external review is properly

before the district court in this ERISA case, but erred in holding that the adverse

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external review decision barred Alexandra from presenting her challenge to the

adverse medical necessity determination. Because the external review process does

not conflict with ERISA, it is not preempted. Accordingly, we affirm in part,

reverse in part and remand for further proceedings.

I. BACKGROUND

While Alexandra was a second grade teacher at St. Ann’s School in

Brooklyn, New York, she was enrolled in an employee benefits plan that provided

healthcare services. The benefits plan was sponsored by her employer and insured

by Oxford. Because the plan relates to employee welfare benefits, it is governed by

ERISA.

A. Employee Benefits Plan and Appeal Process

Alexandra’s benefit plan covers various medical services, including mental

health services. The plan specifically covers “diagnosis and treatment of

Biologically Based Mental Illnesses for adults and children received on an

inpatient, partial hospitalization or outpatient basis.” One of the listed

“Biologically Based Mental Illnesses” that the plan covers is “bulimia and

anorexia.” The plan does not cover services that Oxford determines are not

“Medically Necessary.” The plan defines “Medically Necessary” to mean:

Medically Necessary: Services or supplies as provided by a Hospital,

Skilled Nursing Facility, Physician or other provider required to identify or

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treat your illness or injury and which, as determined by Our [i.e, Oxford’s]

Medical Director, are:

1. Consistent with the symptoms or diagnosis and treatment of your

condition;

2. Appropriate with regard to standards of good medical practice;

3. Not solely for your convenience or that of any provider; and

4. The most appropriate supply or level of service which can safely be

provided. For inpatient services, it further means that your condition

cannot safely be diagnosed or treated on an outpatient basis.

Unless otherwise indicated in this Certificate, determinations as to Medical

Necessity are made by Us [i.e., Oxford], and such determinations are solely

within Our [i.e., Oxford’s] discretion.

The plan thus grants Oxford the sole discretion to determine internally if a

particular kind of healthcare service is medically necessary and therefore covered

by the plan. If a plan beneficiary disagrees with an adverse medical necessity

determination by Oxford, she has two different review processes available to her.

She must first appeal the decision internally, meaning that Oxford itself reviews

the initial adverse medical necessity determination. If Oxford decides to uphold the

adverse determination, the participant can go through a second appeal. The

participant can choose between two second appeal options: 1) a second internal

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appeal conducted by Oxford, or 2) an external appeal administered by the State of

New York. If the participant chooses to do a second internal appeal through

Oxford and Oxford upholds the adverse determination for a second time, the

participant may then choose to pursue an external review. As mandated by New

York Insurance Law § 4914, and as enshrined in Oxford’s plan, the external review

process shall:

- be conducted only by one or a greater odd number of Clinical Peer

Reviewers.

- be accompanied by a notice of Appeal determination which will include

the reasons for the determination. Where the FAD [i.e., final adverse

determination] is upheld on Appeal, the notice will include the clinical

rationale (if any) for the determination.

- be subject to the terms and conditions generally applicable to benefits

under your Certificate.

- be binding on Us [i.e., Oxford] and you [i.e., the participant].

- be admissible in any court proceeding.

Further, and as will be explained later, importantly, the plan states that it is

governed by the laws of the State of New York.

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B. Alexandra H’s Benefits Claim

Alexandra has a history of an eating disorder called anorexia nervosa,

starting when she was 14 years old. According to an intake assessment form from

November of 2009, she has been hospitalized approximately 15 times and

participated in numerous day treatment programs. Alexandra has also been

hospitalized for two suicide attempts.

On December 14, 2010, Alexandra was admitted to Oliver-Pyatt Centers

(“Oliver-Pyatt”), an eating disorder treatment facility in Miami, Florida. She was 5

feet, 6 inches tall and weighed 110 lbs., which was 15 lbs. less than the ideal body

weight of 125 lbs. Alexandra was severely depressed and was restricting and

binging her food. Oliver-Pyatt admitted her for partial hospitalization level of care

to treat her depression and anorexia.

Oxford initially approved Alexandra’s claim for benefits to cover her partial

hospitalization level of care at Oliver-Pyatt from December 14 to December 16. On

December 17, Oxford spoke with Angie Gonzalez, a therapist at Oliver-Pyatt, who

reported that Alexandra weighed 111.4 lbs. and was eating 50-75% of her daily

1,200-calorie meal plan, but was not cooperating with the treatment plan. After

talking with Dr. Lawson, a physician at Oliver-Pyatt, Oxford approved

Alexandra’s partial hospitalization treatment from December 14 to December 26.

After checking in with Oliver-Pyatt on December 27, Oxford approved coverage

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for Alexandra’s continued care at this level through January 3, 2011. There is no

dispute about the coverage from December 14, 2010 through January 4, 2011.

On January 4, 2011, Dr. Lawson reported to Oxford that Alexandra weighed

113 lbs. and was eating 100% of her daily 1,500-calorie diet. Dr. Lawson said that

Alexandra was compliant with the treatment, but continued to have depressive

episodes. Oxford then advised Alexandra that her claim for continued treatment at

the partial hospitalization level of care was denied as of January 5, 2011, because

the treatment was not medically necessary. Oxford explained that Alexandra had

“shown improvement in symptoms and functioning with no severe symptoms at

[that] time” and any ongoing treatment could “be addressed in a[n] intensive

outpatient level of care.” Oxford further informed Alexandra that she could appeal

the decision and gave her a detailed explanation of her appeal rights.

C. Alexandra’s Internal Appeals

On January 5, 2011, Alexandra requested an expedited appeal of the

decision and Oxford’s Medical Director, Dr. Lee Becker, who is board certified in

psychiatry, reviewed the appeal. Dr. Becker also determined that partial

hospitalization was not medically necessary as of January 5, 2011, and notified

Alexandra of his decision by letter on January 6. Dr. Becker informed Alexandra

that his decision was based on her “improvements in the initial precipitating

symptoms” and “there no longer [being] such significant impairments in

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psychosocial functioning, due to severe symptoms/behaviors, [which require] this

intensity of structure and monitoring.” The letter also set forth Alexandra’s appeal

rights.

On January 17, 2011, Alexandra requested a second appeal through Oxford.

The appeal letter contained statements from Oliver-Pyatt staff saying that as of

January 5, when coverage was denied, Alexandra “was struggling with severe

depression and suicidal ideation” and thus it was “highly inappropriate and

dangerous to step her down to a lower level of care.” Oxford’s Dr. Theodore

Allchin, who is board certified in psychiatry and child and adolescent psychiatry,

reviewed Alexandra’s appeal and again approved the denial of coverage finding

that partial hospitalization was not medically necessary as of January 5. By letter

dated February 8, 2011, Oxford informed Alexandra of its decision to uphold the

adverse determination, stating that Alexandra did not meet the medically necessity

criteria because her weight and vital signs were stable and there was “no evidence

that the patient would require a higher level of care without this intensity of

services.” The letter notified Alexandra of her right to an independent external

appeal through the New York State External Appeal Process. The denial letter also

explained that “[a]n external appeal agent’s medical necessity decision is binding

upon both the member and Oxford” and the external review “process is not part of

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the member’s rights under ERISA.” The letter further stated that Alexandra “may

have the right to file a civil action under 502(a) of [ERISA].”

D. Alexandra’s External Appeal

Following her unsuccessful administrative appeals through Oxford,

Alexandra requested an external appeal, as provided under New York Insurance

Law § 4910. Her external appeal was assigned to the Medical Care Ombudsman

Program, MCMC. MCMC had a board certified physician in psychiatry

independently review Alexandra’s case. On March 18, 2011, the physician

concluded that Oxford’s determination that Alexandra’s treatment was not

medically necessary as of January 5 should be upheld. As a result, Oxford did not

reverse its denial of Alexandra’s claim.

E. District Court Proceedings

On November 2, 2011, Alexandra filed suit against Oxford in the U.S.

District Court for the Southern District of Florida, seeking an award of benefits

under ERISA § 502(a)(1)(B). Oxford then provided Alexandra with a copy of the

administrative record, which included the decision from the external appeal. On

June 1, 2012, Alexandra issued a subpoena duces tecum to MCMC, who conducted

the external review. Oxford moved for a protective order to quash the subpoena,

but the district court denied the motion.

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On August 17, 2012, Alexandra moved to strike the external appeal from the

administrative record. The district court granted the motion finding that “the

external appeal proceedings do not constitute a part of the record for purposes of

ERISA review.” Oxford then moved to reconsider the order striking the external

appeal or, alternatively, certify the question for interlocutory appeal. The district

court reconsidered the motion to strike and modified its previous order to include

the external appeal in the administrative record. The district court also stated that

“[b]ecause the external reviewer’s decision is presumably dispositive of the claim,

Plaintiff has three weeks to show cause why judgment should not be granted in

favor of Defendant.” Alexandra responded to the order to show cause. The district

court subsequently issued a second order on August 25, 2014, finding “that the

external appeal upholding Plaintiff’s denial of benefits is conclusive as to the issue

of medical necessity, but Plaintiff may conduct discovery as to whether the

external reviewer had any conflict of interest that may have biased the decision.”

Pursuant to the district court’s order, Alexandra sought discovery against

MCMC in Massachusetts (where MCMC is located) regarding whether MCMC

had any conflict of interest that affected the external appeal. MCMC filed a

protective order against the discovery in Massachusetts court. Meanwhile,

Alexandra asserted she was not able to obtain the discovery that the District Court

in Florida had allowed.

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After the allotted discovery time passed, both parties moved for summary

judgment. The motions were referred to Magistrate Judge John J. O’Sullivan, who

recommended granting Oxford’s motion for summary judgment and denying

Alexandra’s. Magistrate Judge O’Sullivan found that Alexandra had “not shown

that the external reviewer’s determination of the issue of medical necessity” was

tainted or biased and thus the external review’s decision on medical necessity of

the treatment was binding on the parties. The district court adopted the magistrate’s

recommendations in an order on March 24, 2015, and entered judgment in favor of

Oxford. Alexandra timely appealed to this Court.

II. STANDARD OF REVIEW

We “review de novo a district court’s ruling affirming or reversing a plan

administrator’s ERISA benefits decision, applying the same legal standards that

governed the district court’s decision.” Blankenship v. Metro. Life Ins. Co., 644

F.3d 1350, 1354 (11th Cir. 2011). We also review de novo a district court’s grant

of summary judgment. Forbus v. Sears Roebuck & Co., 30 F.3d 1402, 1404 (11th

Cir. 1994). Summary judgment is appropriate where there is “no genuine issue as

to any material fact and the moving party is entitled to judgment as a matter of

law.” Fed. R. Civ. P. Rule 56(a).

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III. DISCUSSION

A. The Governing Law

Under § 1132 of ERISA, a plan participant or beneficiary may bring a civil

action “to recover benefits due to him under the terms of his plan, to enforce his

rights under the terms of the plan, or to clarify his rights to future benefits under

the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). While ERISA itself offers no

guidance as to how courts should interpret provisions of an employee welfare

benefits plan, it is well established that federal courts “have the authority to

develop a body of federal common law” to govern the interpretation and

enforcement of benefit plans in ERISA cases. Tippitt v. Reliance Standard Life Ins.

Co., 457 F.3d 1227, 1234–35 (11th Cir. 2006); see also Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101, 110 (1989); Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41, 56 (1987); Hauser v. Life Gen. Sec. Ins. Co., 56 F.3d 1330, 1333 (11th Cir.

1995), as amended on denial of reh’g (Sept. 15, 1995).

In deciding whether to adopt a certain rule into the federal common law,

courts must examine whether the proposed rule would further ERISA’s scheme

and goals. Dixon v. Life Ins. Co. Of N. Am., 389 F.3d 1179, 1183 (11th Cir. 2004).

“ERISA has two central goals: (1) protection of the interests of employees and

their beneficiaries in employee benefit plans; and (2) uniformity in the

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administration of employee benefit plans.” Horton v. Reliance Standard Life Ins.

Co., 141 F.3d 1038, 1041 (11th Cir. 1998) (internal citations omitted).

“When crafting a body of common law, federal courts may look to state law

as a model because of the states’ greater experience in interpreting insurance

contracts and resolving coverage disputes.” Id.; Hauser, 56 F.3d at 1333.

Borrowing from state contract law, the district courts have further developed rules

of contract interpretation for construing ERISA plans. See e.g., Epolito v.

Prudential Ins. Co. of Am., 737 F. Supp. 2d 1364, 1373 (M.D. Fla. 2010); Smith v.

Cont’l Cas. Co., 616 F. Supp. 2d 1286, 1296 (N.D. Ga. 2007); Luton v. Prudential

Ins. Co. of Am., 88 F. Supp. 2d 1364, 1370–71 (S.D. Fla. 2000); Harrison v. Aetna

Life Ins. Co., 925 F. Supp. 744, 748-49 (M.D. Fla. 1996).

We first look to the plain and ordinary meaning of the policy terms to

interpret the contract. Smith v. Cont’l Cas. Co., 616 F. Supp. 2d at 1296 (citing

Bedinghaus v. Modern Graphic Arts, 15 F.3d 1027, 1029–30 (11th Cir.1994)); see

also Billings v. UNUM Life Ins. Co. of Am., 459 F.3d 1088, 1094−95 (11th Cir.

2006). A term is ambiguous if it is susceptible to two or more reasonable

interpretations that can be fairly made. Novak v. Irwin Yacht & Marine Corp., 986

F.2d 468, 472 (11th Cir. 1993); Luton, 88 F. Supp. 2d at 1370–71 (citing Dahl–

Eimers v. Mutual of Omaha Life Ins. Co., 986 F.2d 1379 (11th Cir.1993)). We

have further established that once we conclude a term is ambiguous, the rule of

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contra proferentem requires us to construe any ambiguities against the drafter.

Billings, 459 F.3d at 1095; Jones v. Am. Gen. Life and Acc. Ins. Co., 370 F.3d

1065, 1070 (11th Cir. 2004). These rules of contract interpretation are generally

accepted as part of the federal common law. See Tippitt, 457 F.3d at 1234–37;

Kathryn J. Kennedy, Judicial Standard of Review in ERISA Benefit Claim Cases,

50 Am. U. L. Rev. 1083, 1121–22 (2001) (“In the absence of explicit language,

many of the circuits have used the contract principles of plain meaning and contra

proferentum, if appropriate, to interpret plan provisions, affording the plan

language its “plain meaning” and construing ambiguous language against the

drafting party.”). 1

In the Eleventh Circuit, we have also enforced choice-of-law provisions in

ERISA contracts and used state law to interpret terms in the ERISA contract when

the state law was not unreasonable or fundamentally unfair. Buce v. Allianz Life

Ins. Co., 247 F.3d 1133, 1149 (11th Cir. 2001); Capone v. Aetna Life Ins. Co., 592

F.3d 1189, 1196–97 (11th Cir. 2010). In Buce, we grappled with whether to apply

federal common law or state law to interpret the meaning of “accident” in an

ERISA plan. Walter Buce died in a single-vehicle crash and was later shown to

have been driving under the influence of alcohol. Buce, 247 F.3d at 1136. Buce
1
Our sister circuits appear to be in agreement with these canons of interpretation and have
applied similar rules of construction in ERISA cases. See, e.g., Harris v. The Epoch Grp., L.C.,
357 F.3d 822, 825 (8th Cir. 2004); Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th Cir.
1998); Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429, 431 (7th Cir. 1994).

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had a Personal Accident Insurance Plan, which provided that the plan was to be

interpreted under the laws of the State of Georgia. Id. His wife brought suit to

claim the benefit under the plan for her husband’s death after the insurance

company denied the claim. Id. at 1136–37. The insurance company reasoned that

Buce’s death was not an accident because the policy required the injury to be

caused by accidental means, which required some sudden, unexpected, and

unforeseen act that led to the injury. Id. at 1137. This definition of “accident,”

referred to as “accidental means,” was consistent with Georgia law. Id. at 1144.

Because Buce had been intoxicated at the time of the accident, the insurance

company determined that his death was not an accident within the meaning of the

policy. Id. at 1137.

We explained that when deciding whether to honor a choice of law provision

in an ERISA plan, “[t]he pertinent question is whether the principles of liability

agreed upon by the parties are inconsistent with the language of ERISA or the

policies that inform that statute and animate the common law of the statute.” Id. at

1148. We held that Georgia’s interpretation of accident, while subject to

formidable criticism, was not contrary to ERISA. Id. at 1148–49. “Where a choice

of law is made by an ERISA contract, it should be followed, if not unreasonable or

fundamentally unfair.” Id. at 1149. Finding no signs of unreasonableness or

unfairness, we upheld the choice of law provision.

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We again honored a choice of law contract contained in an ERISA welfare

benefit plan in Capone v. Aetna Life Ins. Co., 592 F.3d 1189 (11th Cir. 2010),

holding that a choice of law provision should be followed as long as it is consistent

with ERISA and not unreasonable or fundamentally unfair.

In this case, Alexandra argues that New York state law should apply to

interpret the insurance contract because her benefits plan states that it is governed

by New York law. In 1998, the State of New York enacted New York Law Ch.

586, S. 7838, titled “Public Health, Insurance—Contract Terms—External

Appeals.” 1998 Sess. Law News of N.Y. Ch. 586 (S. 7838) (McKINNEY’S).

Section 4910 “established an enrollee’s right to an external appeal of a final

adverse determination by a health care plan.” 2 The procedures for the external

appeal process were laid out in § 4914. Relevant to this case, § 4914 provides that

an external appeal shall “(i) be conducted only by one or a greater odd number of

clinical peer reviewers, (ii) be accompanied by a notice of appeal determination

which shall include the reasons for the determination; provided, however, that

where the final adverse determination is upheld on appeal, the notice shall include

the clinical rationale, if any, for such determination,(iii) be subject to the terms and

conditions generally applicable to benefits under the evidence of coverage under

2
The only difference in the law as enacted in 1998 from its current state is that “enrollee” has
been changed to “insured.” See N.Y. Ins. Law § 4910 (“There is hereby established an insured’s
right to an external appeal of a final adverse determination by a health plan.”)

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the health care plan, (iv) be binding on the plan and the insured, and (v) be

admissible in any court proceeding.” N.Y. Ins. Law § 4914(b)(4)(A).

Alexandra’s ERISA plan parrots this language almost verbatim and declares

that an external appeal from Oxford will be binding on both parties and admissible

in any court proceeding. Alexandra points to a body of New York court cases that

consistently interpret the “binding” language in the New York statute, as repeated

almost verbatim in Oxford’s plan. While these cases are not ERISA cases, they are

all interpreting New York Insurance Law § 4914, which is central to this case.

The first such case, in time, is Nenno v. Blue Cross & Blue Shield of W. New

York, 303 A.D.2d 930 (N.Y. App. Div. 2003), reh’g and appeal denied, 306

A.D.2d 960, (N.Y. App. Div. 2003). In Nenno, the Appellate Division of the New

York Supreme Court3 considered the meaning of the language in New York

Insurance Law § 4914, specifically the phrases “binding of the plan and the

insured” and “admissible is any court proceeding.” Nenno, 303 A.D.2d at 932. The

Nenno family had a health insurance policy that covered up to $3,000 per year of

private duty nursing case and unlimited care in a skilled nursing facility for their

son Jeffrey, who was born with cerebral palsy-quadriplegia. Id. at 930−31. In 1986,

the insurance company agreed to pay for private, in-home skilled nursing care

because the cost of the in-home care was less than the alternative cost of the
3
In the New York court system, the Appellate Division of the Supreme Court resides just below
the Court of Appeals, which is the highest court in New York.

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unlimited skilled nursing care. Id. at 931. The insurance company covered this cost

up until 2001, when it then determined that the in-home level of care was no longer

medically necessary and thus was no longer covered by insurance. Id. The Nenno

family appealed the decision twice through the insurance company’s internal

appeal process, with both appeals affirming the adverse determination that the care

was not medically necessary. Id. The Nennos then pursued an independent external

appeal, as provided by New York law, that again upheld the adverse finding.

The Nenno family commenced a breach of contract action in state court and

the insurance company moved to dismiss the complaint based on res judicata or

collateral estoppel, arguing that the external appeal was binding and precluded the

lawsuit. Id. The Appellate Division held that the “binding” language in New York

Insurance Law § 4914 did not bar Nennos’ action. Id. at 932. The court reasoned

that while § 4914 provides that the external appeal shall “be binding on the plan

and the insured,” the statute also declares that the external appeal shall “be

admissible in any court proceeding.” Id. The court also pointed to § 4907, which

ensures that “[t]he rights and remedies conferred in this article upon insureds and

health care providers shall be cumulative and in addition to and not in lieu of any

other rights or remedies available under law.” Id. Thus, the court determined that

New York Legislature “made clear that insureds and health care providers are

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entitled to pursue all of their rights and remedies available in a court of law,

regardless of whether they have sought and obtained an external appeal.” Id.

The issue of defining “binding” within the context of New York Insurance

Law § 4914 came up for the second time before the Supreme Court of New York

County4 in Vellios v. IPRO, External Review Agent, 1 Misc. 3d 468 (N.Y. Sup. Ct.

2003). In Vellios, the New York court dealt with a similar set of procedural facts:

Loula Vellios was denied coverage of her brain cancer treatment because the

treatment was part of an experimental program. Vellios, 1 Misc. 3d at 469–70.

Such experimental programs were not covered by Vellios’s health care plan. Id. at

470. Like the Nennos family, Vellios appealed the adverse determination internally

through her insurance company, which upheld the denial of coverage. Id. Vellios

then pursued an external appeal. Id. The external appeal again determined that the

insurance company’s denial of coverage was proper. Id. at 471. Vellios filed suit

against the external appeal agent challenging the external appeal determination.5

Id. The external appeal agent moved to dismiss, contending, as relevant here, that

the external review was binding on Vellios. Id. The court followed Nenno and
4
In New York state, the Supreme Courts are trial courts. Decisions of the Supreme Courts may
be appealed first to Appellate Terms of the Supreme Court, thereafter to Appellate Divisions of
the Supreme Court, and finally to the Court of Appeals.
5
Vellios also filed suit against the superintendent of her insurance company, but the claim was
dismissed because the court found that the ultimate determination of an external appeal rested
with the external appeal agent. Vellios, 1 Misc. 3d at 471. The court explained that the
superintendent did not have any power to alter or review the external appeal decision and thus
there was no action made by the superintendent which could be reviewed by the court regarding
the external appeal. Id.

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found that this argument had no merit because the “binding” language in § 4914

was not meant to prevent insureds or heath care providers from pursuing their legal

rights and remedies under the law. Id. at 471–72. Instead, the court understood the

term “binding” in § 4914 to “mark the end of any administrative appeal,” but not to

bar court review. Id. at 472.

In a third case, Schulman v. Grp. Health Inc., 39 A.D.3d 223 (N.Y. App.

Div. 2007), the Appellate Division again held that external appeals do not preclude

an insured from seeking redress in court. Following both Nenno and Vellios, the

court explained that the “[t]he primary purpose of this external appeal law [i.e.,

New York Insurance Law § 4914] was to create a new layer of independent and

impartial administrative review, which did not previously exist, and which would

provide consumers with a low-cost, expedited review option in addition to the

courts.” Schulman, 39 A.D.3d at 224. The court determined that barring judicial

review would go against the statutory scheme and the legislative intent of the

external appeal law. Id. If the external appeal did preclude judicial review, the

court stated that there would be no mechanism for reviewing erroneous or arbitrary

external appeal decisions. Id. The court found that such an outcome would be

inconsistent with the statute’s purpose and detrimental to both insurers and

insureds. Id.

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In New York’s most recent case on this issue, Mercy Flight Cent., Inc. v.

Kondolf, 41 Misc. 3d 483 (N.Y. City Ct. 2013), the court dealt with a slightly

different factual situation.6 In Mercy Flight, James Kondolf fell down the stairs

while under the influence of alcohol and drugs and suffered a head laceration.

Mercy Flight Cent., 41 Misc. 3d at 486. An ambulance responded to the scene and

called for Mercy Flight Central, Inc.’s air transport services to get Kondolf to a

trauma center. Id. Kondolf’s insurance company denied coverage for the air

transport on the basis that it was not medically necessary. After losing an internal

appeal, Kondolf pursued an external appeal, which also found the flight service not

medically necessary. Id. at 485. Mercy Flight Central then brought suit against

Kondolf to recover expenses for the flight service. Id. Kondolf argued, among

other things, that he was not responsible for the expenses because the flight service

was not medically necessary. Id. at 487–88. Kondolf contended that the external

appeal decision finding on medical necessity was binding on Mercy Flight Central,

citing New York Insurance Law § 4914(b)(4). Id. Relying on the Appellate

Division precedents in Nenno and Schulman, the Mercy Flight court held that the

external appeal was not dispositive of the medical necessity finding and that Mercy

Flight could challenge the issue in court. Id. at 490–91, 492.

6
Like Vellios, Mercy Flight was decided by a trial court, the City Court of Canandaigua.

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Additionally, the legislative history of the New York Insurance Laws

explains that the purpose of the addition of the external appeal process to challenge

a denial of benefits is to provide a cost effective, independent and impartial layer

of review in addition to court review. New York Bill Jacket 1998 S.B. 7838, Ch.

586 (“In establishing a procedure for appeals to be heard by an external review

agent, the bill provides a mechanism for consumers to obtain an independent,

impartial opinion regarding coverage determinations.”); Id. (“Currently, certain

insurance and HMO policies exclude coverage for . . . procedures or services

which are not deemed to be ‘medically necessary,’ without providing for an

external review of that determination. Not only is there a lack of uniformity among

plans regarding standards for coverage, the court system has been forced to deal

with disputes arising over these issues, and the approach is costly to both patients

and third-party payors.”). However, New York Insurance Law § 4907 demands,

this external review is not to alter or impede and insured’s rights under ERISA.

ERISA is also silent on which standard of review applies to actions

challenging adverse benefit determinations. However, the Supreme Court has

established a framework for determining the proper standard for reviewing ERISA

cases. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989); see also Metro.

Life Ins. Co. v. Glenn, 554 U.S. 105 (2008). In an ERISA case, the standard of

review for summary judgment depends on whether the administrator had discretion

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to deny a claim. In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court said

that “a denial of benefits challenged under [ERISA] § 1132(a)(1)(B) is to be

reviewed 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. . . . [I]f a benefit plan gives discretion to an

administrator or fiduciary who is operating under a conflict of interest, that conflict

must be weighed as a factor in determining whether there is an abuse of

discretion.” Firestone, 489 U.S. at 115.

In accordance with this framework, we apply the following six-step test to

determine which standard is appropriate in a given case:

(1) Apply the de novo standard to determine whether the claim

administrator’s benefits-denial decision is “wrong” (i.e., the court disagrees

with the administrator’s decision); if it is not, then end the inquiry and affirm

the decision.

(2) If the administrator’s decision in fact is “de novo wrong,” then determine

whether he was vested with discretion in reviewing claims; if not, end

judicial inquiry and reverse the decision.

(3) If the administrator’s decision is “de novo wrong” and he was vested

with discretion in reviewing claims, then determine whether “reasonable”

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grounds supported it (hence, review his decision under the more deferential

arbitrary and capricious standard).

(4) If no reasonable grounds exist, then end the inquiry and reverse the

administrator’s decision; if reasonable grounds do exist, then determine if he

operated under a conflict of interest.

(5) If there is no conflict, then end the inquiry and affirm the decision.

(6) If there is a conflict, the conflict should merely be a factor for the court

to take into account when determining whether an administrator’s decision

was arbitrary and capricious.

Blankenship v. Metro. Life Ins. Co., 644 F.3d 1350, 1355 (11th Cir. 2011). Thus, in

ERISA cases, the default standard of review is de novo unless the plan vests

discretion in the plan administrator to determine benefit claims. Firestone, 489

U.S. at 115.

B. Application of Governing Law to this Case

The issue in this case is whether the external review precludes Alexandra

from bringing an ERISA action under 29 U.S.C. § 1132(a)(1)(B) in district court to

challenge the medically necessity determination of her treatment. However, as an

initial matter, we must determine whether the external review is part of the

administrative record. If it is not, there is no need to determine whether it is

binding on the parties in district court.

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1. Whether the External Review is Part of the Administrative Record

On Alexandra’s motion to strike the external appeal from the record, the

district court initially decided that the external review was not part of the

administrative record and granted Alexandra’s motion. [Doc. 111] The court

reasoned that an external review operates alongside the review process provided by

ERISA and does not supplant or supplement the ERISA process. The court further

stated the court’s role in an ERISA case is to review the decision of the plan

administrator, here Oxford. Because Oxford could only actively affirm the external

appeals result, the court determined that Oxford had no discretion in the external

review determination. Without this discretion, the court held that the external

review was not part of the administrative record before Oxford. 7 Oxford moved to

reconsider and after a hearing and additional briefing on the issue, the court

reversed. [Doc. 127] The court instead decided that the external review is part of

the administrative record because it informed Oxford’s ultimate decision to deny

benefits in this case.8

7
Because the court determined that the external review was not part of the administrative record
and the court’s role was only to review the administrative decision, the court stated that the
arbitrary and capricious standard applied when reviewing Oxford’s decision to deny benefits.
8
While the court found that the external appeal was ultimately part of the record, the court
determined that this result changed the standard of review that applied to this case. The court
explained that because Alexandra pursued an optional, yet binding, external appeal, the resulting
external decision removed Oxford’s discretion to deny benefits. Accordingly, the court held that
the de novo standard of review applied because Oxford’s discretion in the matter had been
removed.

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It is well established that in reviewing a denial of ERISA benefits, the

relevant evidence is limited to the record before the administrator at the time the

decision was made. Glazer v. Reliance Standard Life Ins. Co., 524 F.3d 1241, 1246

(11th Cir. 2008); Jett v. Blue Cross & Blue Shield of Alabama, Inc., 890 F.2d 1137,

1139 (11th Cir. 1989) (stating that the court’s review is “based upon the facts as

known to the administrator at the time the decision was made”). Alexandra argues

that the administrative record closed on February 8, 2011, when Oxford denied

Alexandra’s claim for a second time by issuing a final adverse determination.

Thus, Alexandra maintains that the external review is not part of the administrative

record reviewable by the court because it came after the agency had concluded its

internal appeals and conclusively denied Alexandra’s benefits claim. Oxford

contends that it did consider the external review because Oxford would have been

required by the benefits plan to reverse its denial decision if the external review

had so found. Because it would have inherently been required to comply with the

external appeal agent’s decision, Oxford argues that the external review is part of

the administrative record. We agree with Oxford.

The record shows that Oxford received the decision from the external review

on March 18, 2011. Factually, the external review was part of Oxford’s

administrative file. Oxford’s records acknowledge that the external review upheld

the decision to deny benefits and so Oxford did not change its decision to deny

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coverage. The benefits plan states that “[i]f the External Appeal Agent overturns

Our decision that a service was not Medically Necessary or approves coverage of

an experiment or investigational treatment, We will provided coverage subject to

the other terms and conditions of this Certificate.” Accordingly, Oxford would

have been obligated to provide coverage if the external review had declared

Alexandra’s treatment medically necessary. It follows that Oxford’s ultimate

decision on Alexandra’s claim would not have been made until after Oxford

received the external review. Thus, the administrative record before Oxford should

include the external review.

This result is also proper as a matter of fairness and reasonable expectations.

Alexandra elected to appeal the adverse benefits determination externally before

bringing a civil action in court. Her plan allowed her to pursue this additional

external appeal, but also mandated that the external review be admissible evidence

in any court proceeding. If the external appeal decision had instead determined that

Oxford had wrongly denied Alexandra’s claim but Oxford refused to cover the

claim, Alexandra would most certainly expect that the external appeal be included

in the administrative record in a court action to recover her benefits. In the reality

that the external review upholds the adverse determination, as here, the inclusion

of the external review should be the same in fairness to Oxford. Alexandra is

seemingly asking for a win-win situation where if she wins the external appeal, it’s

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in the record, if she loses, it’s out. But she cannot have it both ways. The inclusion

of the external appeal in the record cannot depend on which party it benefits.

Because the external review was part of the material that Oxford considered in

making its decision on Alexandra’s benefits claim, it is part of the administrative

record regardless of what the external reviewer decided on the merits of the claim.

And, finally, as a matter of contract, Alexandra claims the benefit of a contract that

expressly provides that the external review is admissible in court.

We thus conclude that the external review is part of the administrative

record in this case.

2. Whether the External Review is Binding on the Parties in Federal

Court

Because the external review is part of the administrative record, we now turn

to the central question of whether the external review bars Alexandra from

challenging the medically necessity of her treatment in court.

Section 1132 of ERISA allows a participant or beneficiary of an employee

benefits plan to bring a civil action “to recover benefits due to him under the terms

of his plan, to enforce his rights under the terms of the plan, or to clarify his rights

to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). Before

bringing such an action in district court, the participant must “exhaust available

administrative remedies under their ERISA-governed plans.” Springer v. Wal-Mart

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Associates’ Grp. Health Plan, 908 F.2d 897, 899 (11th Cir. 1990). This exhaustion

requirement appears to only apply to internal appeals and does not encompass

external appeal remedies, such as the one at issue in this case. Id. at 901 (finding

that the ERISA plaintiff was required to exhaust her internal appeals process

before bringing a civil action); see also Rush Prudential HMO, Inc. v. Moran, 536

U.S. 355, 385 (2002) (“[ERISA] simply requires plans to afford a beneficiary some

mechanism for internal review of a benefit denial, 29 U.S.C. § 1133(2), and

provides a right to a subsequent judicial forum for a claim to recover benefits, §

1132(a)(1)(B).” (emphasis added)).

Consistent with ERISA, Alexandra’s insurance policy allows for internal

appeals of adverse determinations on benefits claims. After pursuing at least one

internal appeal through Oxford, the insured may request an external appeal.

Specifically, the plan provides for an external review conducted “through the New

York State External Appeal Process.” The plan states that the external appeal

determination will “be binding on Us and you” and “be admissible in any court

proceeding,” repeating almost verbatim what is required for external appeals in

New York Insurance Law § 4914(b)(4)(A)(iv)–(v). The external appeal is reviewed

by an independent entity certified by the state to conduct such appeals.

Alexandra opted to pursue an external appeal after two unsuccessful

attempts to appeal the denial of benefits through Oxford internally. The external

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appeal upheld Oxford’s decision, agreeing that partial hospitalization treatment

was not medically necessary. The district court found that because the plan

declared that the external appeal was binding, the external appeal was conclusive

on the medical necessity issue. Thus, the court precluded Alexandra from

challenging the medical necessity of her treatment in court and limited review of

the external appeal to whether the external review was bias or inaccurate.

To determine whether the district court properly found that the external

review is binding on the medical necessity issue and thereby prevents Alexandra

from challenging this finding on the merits in court, we must interpret the language

of the benefits plan. This is an ERISA plan and thus, as discussed above, the rules

of contract interpretation from the federal common law apply.

Alexandra’s benefits plan states that the plan “is governed by the laws of the

State of New York.” The plan also specifies that “[t]he laws of the State of New

York shall be applied to interpretations of this Certificate.” The choice of New

York law thus becomes important when interpreting what “binding” means in the

plan.

From our discussion above of the New York case law concerning § 4914, it

is clear and undisputed that New York courts have consistently held that the term

“binding” does not preclude an insured from challenging the merits of an external

appeal in court. Nenno, 303 A.D.2d at 932; Schulman, 39 A.D.3d at 224; Vellios, 1

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Misc. 3d at 472; Mercy Flight Cent., Inc., 41 Misc. 3d at 490–91. Instead, New

York courts have explained that “binding” means the external review decision

marks the end of the administrative appeal process. Vellios, 1 Misc. 3d at 472

(“The provision making the external appeal agent’s determination binding must be

construed to mean that it marks the end of any administrative appeal, inasmuch as

there is no one, including the Superintendent of Insurance, empowered to conduct

a further review, but that it does not bar a review of the determination by a court.”).

Oxford does not seriously contest what the New York cases stand for (i.e.,

that “binding” does not mean binding on the merits and thus does not preclude

challenging the medical necessity determination). Oxford also does not belittle the

New York case law on the ground that it comes from a level below the Court of

Appeals. The relevant law is long-standing and settled in New York insurance law.

See 70 N.Y. JUR. 2D INSURANCE § 1507; William Pitsenberger, “Sez Who?”: State

Constitutional Concerns with External Review Laws and the Resulting Conundrum

Posed by Rush Prudential Hmo v. Moran, 15 Conn. Ins. L.J. 85, 102 (2008).

Instead, Oxford argues that the New York case law does not apply to this case

because the state cases construing the term “binding” did not involve ERISA-

governed plans.9 The district court agreed and declined to consider the New York

9
Further, Oxford argues that we should not apply the New York cases because they are res
judicata cases. We do not find this distinction helpful. Instead, this argument ignores the true
issue in this case: whether the external review is binding in such a way as to preclude Alexandra
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case law to interpret the benefit plan. Instead, the district court stated that it is only

bound by federal common law ERISA interpretations, citing Schultz v. Metro. Life

Ins. Co., 994 F. Supp. 1419, 1421 (M.D. Fla. 1997) (where the court declined to

rely on Florida state court decisions to define what qualified as an “accident” under

an ERISA plan and instead using federal common law to interpret “accident”).

As discussed above, to develop the federal common law, courts may look to

state law as an example. Tippitt, 457 F.3d at 1235. “To decide whether a particular

rule should become part of ERISA’s common law, courts must examine whether

the rule, if adopted, would further ERISA’s scheme and goals, which include: (1)

protection of the interests of employees and their beneficiaries in employee benefit

plans; and (2) uniformity in the administration of employee benefit plans.” Id.

(internal citation omitted). Adopting New York’s interpretation of “binding” would

further these goals.

ERISA allows a plan participant to bring suit “to recover benefits due to him

under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). ERISA specifically allows

a plan participant to challenge a decision on benefits in court. If the external review

is not binding, there is no interference with this ERISA remedy. An insured is able

to bring a civil action regardless of whether or not they pursue an external appeal.

from bringing her claim in district court. The issue here is the same. The res judicata issue
presented in the New York case law speaks directly on this point, making it all the more relevant.

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In fact, if we were to find the other way and hold that the external review is

binding on the issue of medical necessity, the result would actually undermine the

remedial scheme outlined in ERISA. If this were the case, the external appeal

would act as binding arbitration and prevent the plan participant from utilizing

their ERISA remedy.

Further, federal common law also requires us to honor a plan’s choice of law

provision as long as the state law is not unreasonable or fundamentally unfair.

Buce, 247 F.3d at 1149. There is nothing in the record to suggest applying New

York is unreasonable or unfair in this case. Alexandra was employed as a teacher

in New York and obtained the benefits plan through this employment. The plan

contains a valid choice of law provision, putting both parties on notice of the

governing law. Under such circumstances, it is reasonable to expect New York law

to apply to any disputes over the plan. Consequently, in this case, it is appropriate

to interpret “binding” as New York does and hold that the external appeal is not

binding so as to preclude judicial review. Thus, the district court erred in declining

to give the New York cases their proper weight.

As a matter of New York state law, the external review has uniformly been

declared to be not dispositive of a medical necessity determination. Because of the

choice of law provision in the plan, we accept New York’s interpretation and hold

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that the external appeal decision does not bar judicial review of the merits in this

case.

In preparation for the external appeal process, Alexandra signed a consent

form releasing her medical records to the external appeal agent for review. The

consent form reads the following, in relevant part:

I acknowledge that the decision of the external appeal agent is binding. I

agree not to commence a legal proceeding against the external appeal agent

to review the agent’s decision; provided, however, this shall not limit my

right to bring an action against the external appeal agent for damages for bad

faith or gross negligence, or to bring an action against my health plan.

(emphasis added).

The last sentence of this consent form speaks directly to the issue of whether

Alexandra was precluded from bringing suit in court. In signing this waiver,

Alexandra was informed that she would still be able to bring civil action against

Oxford. This form further solidifies that under New York Insurance Laws, an

insured is able to pursue her rights under ERISA in addition to the external appeal

and bring an action in district court if she so choses. A reasonable person in

Alexandra’s position would understand that by pursuing an external appeal and

signing this consent form, she reserved her right to sue her health plan.

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3. Whether the external appeal process is preempted by ERISA

The final question is whether the New York state law allowing external

review is preempted by ERISA. Under 29 U.S.C. § 1144(a), Congress provided

that ERISA “shall supersede any and all State laws insofar as they may now or

hereafter relate to any employee benefit plan.” However, Congress also carved out

certain state laws that are not preempted by ERISA, including any state law that

“regulates insurance.” 29 U.S.C. § 1144(b)(2)(A); see also New York State

Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,

651 (1995). In order to qualify as a law that “regulates insurance,” and thus be

saved from ERISA’s preemption clause, the state law must 1) “be specifically

directed toward entities engaged in insurance” and 2) “substantially affect the risk

pooling arrangement between the insurer and the insured.” Kentucky Ass’n of

Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003).

Neither party contests the fact that the New York Insurance Laws “regulate

insurance.” New York Insurance Law § 4910(a) provides “[t]here is hereby

established an insured’s right to an external appeal of a final adverse determination

by a health plan.” The law explicitly refers to “the insured” and regulates how the

insured can pursue an external appeal that the provider must honor. New York

Insurance Law §§ 4910, 4914. This adds a term that insurers must make available

for insureds in benefit plans and thus “substantially affects the risk pooling

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arrangement between the insurer and the insured.” Therefore, the New York law

does “regulate insurance” and is not preempted by ERISA under § 1144(a).

We also recognize a second type of preemption, referred to as complete

preemption. Connecticut State Dental Ass’n v. Anthem Health Plans, Inc., 591 F.3d

1337, 1344 (11th Cir. 2009). In the context of ERISA, Congress intended for the

civil remedies under the ERISA enforcement scheme, 29 U.S.C. § 1132(a), to “be

the exclusive vehicle for actions by ERISA-plan participants and beneficiaries

asserting improper processing of a claim for benefits.” Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 52 (1987). Accordingly, “any state-law cause of action that

duplicates, supplements, or supplants the ERISA civil enforcement remedy

conflicts with the clear congressional intent to make the ERISA remedy

exclusive.” Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004). If a state law

provides such a replacement remedy, the state law is preempted under ERISA.

Alexandra raises the preemption issue contingently in the event we were to

affirm the district court’s interpretation of “binding” in the plan and hold that the

external review is binding on the merits. Her theory, in that event, is that Oxford’s

plan, so understood, would include in the ERISA-governed plan a binding

arbitration for the issue of medical necessity.

Because the external review process in the Oxford plan is not binding on the

merits of the medical necessity issue, we perceive no preemptive effect from the

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external review process. There is no concern that the insured’s rights under ERISA

are being intruded on. Thus, there is no complete preemption problem because the

external review is not binding and thus does not replace or erase any ERISA

remedy.

IV. CONCLUSION

For the foregoing reasons, we hold that the district court correctly

determined that the external review is part of the administrative record and thus is

included in the court’s analysis. However, the court erred in determining that the

external review was binding on the parties as to the medical necessity of

Alexandra’s treatment. The external review cannot preclude Alexandra from

challenging the Oxford’s denial of her benefits under ERISA in a district court.10

We therefore affirm in part and reverse and remand in part to allow Alexandra to

argue the medical necessity issue in district court.

AFFIRM IN PART, REVERSE IN PART AND REMAND.

10
In the event that we reverse the district court on the preclusive effect of the medical necessity
issue (as we do), Oxford asks this Court to greet and decide the merits of the medical necessity
issue in this appeal. We decline Oxford’s invitation. We also deem it prudent to give the district
court, in the first instance, the opportunity to reconsider its view that de novo review applies
here, where the external review is stripped of its estoppel effect on the issue of medical necessity.

38