Case: 11-50861 Document: 00512105085 Page: 1 Date Filed: 01/08/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 8, 2013
No. 11-50861 Lyle W. Cayce
Clerk
LUCAS ROSSI,
Plaintiff – Appellant
v.
PRECISION DRILLING OILFIELD SERVICES CORPORATION
EMPLOYEE BENEFITS PLAN,
Defendant – Appellee
Appeal from the United States District Court
for the Western District of Texas
Before JONES, GARZA, and PRADO, Circuit Judges.
GARZA, Circuit Judge:
Lucas Rossi (“Rossi”) appeals the district court’s grant of summary
judgment to Precision Drilling Oilfield Services Corporation Employee Benefits
Plan (the “Plan”) on Rossi’s claim under the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. We VACATE and REMAND to
the district court for entry of an order remanding the case to the Plan for a full
and fair review.
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I
Rossi suffered a hemorrhagic stoke due to the rupture of an arteriovenous
malformation when he was sixteen, and he will likely need care for the
remainder of his life. As the son of an employee of Precision, he is a beneficiary
of the Plan, administered by Precision Drilling Oilfield Services Corporation and
managed, for purposes of this appeal, by United Medical Resources, Inc. The
Plan is governed by ERISA.
Rossi underwent surgery at Memorial Hermann Hospital then transferred
to The Institute for Rehabilitation and Research–Memorial Hermann Hospital
(“TIRR”) for acute rehabilitation. TIRR physicians treated Rossi with aggressive
physical, occupational, and speech therapy. Rossi’s condition improved enough
for him to transfer to Eventide Nursing Home (“Eventide”) to be closer to his
home. Rossi continued to undergo his aggressive therapy regime for about a
month at Eventide. The Plan then denied further coverage for Rossi’s time at
Eventide. The Plan stated,
Based on the clinical information provided, the
requested skilled nursing facility stay is not covered
under the plan because the level of care the patient is
receiving appears to be custodial/maintenance at this
time. There is not enough clinical information on the
physical/occupational therapy being provided to meet
rehabilitation criteria.
Rossi’s condition rapidly deteriorated after leaving Eventide such that his
physician recommended he be admitted to St. David’s Rehabilitation and
Nursing Facility (“St. David’s”) for the same aggressive rehabilitation he was
receiving first at TIRR and then at Eventide. The Plan denied coverage for St.
David’s as well, but for a different reason. Instead of relying on the
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“custodial/maintenance” characterization of Rossi’s treatment, the Plan focused
on the amount of treatment and likelihood of improvement necessary for St.
David’s to fit the Plan’s definition of “rehabilitation facility”:
This admission does not meet the plan definition for
rehabilitation facility. The plan criteria for treatment
in a rehabilitation facility include the necessity of
PT/OT (physical and occupational therapy) five days
per week at a minimum. This patient does not meet
these criteria. The plan criteria also include the
necessity of realistic goals and the likelihood of
significant improvement. The patient does not meet
these criteria. Realistic functional goals with the
likelihood of functional improvement have not been
documented. The case is denied due to plan limitation.
Rossi administratively appealed both the Eventide and St. David’s denials.
The Plan forwarded the appeal to an independent, outside reviewer, who
recommended denying coverage. The reviewer concluded,
The patient is being recommended for an in depth
physical therapy program that does not appear to be
custodial in nature or maintenance therapy. However,
the provided plan and policy language specifically
excludes inpatient care solely for the purpose of a
physical rehabilitation program. Based on the clinical
information submitted for this review, the request for
an inpatient physical therapy rehabilitation program
would be excluded from coverage based on the plan and
policy language provided.
Based on the independent reviewer’s recommendation, the Plan denied coverage.
The Plan did not rely on either a “custodial/maintenance” characterization of
Rossi’s treatment or an insufficient amount of treatment or likelihood of success
necessary for its definition of “rehabilitation facility”. Instead, the Plan based
the administrative appeal denial on an exclusion for physical therapy
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admissions. This exclusion states, “Physical therapy admissions: room and
board or general nursing care for hospital admissions solely for physical
therapy.” (emphasis in original). The denial letter stated the decision was “final,
binding and conclusive” and advised Rossi of his right to bring an ERISA action.
Following denial of his administrative appeal, Rossi brought suit under
ERISA. As part of this litigation, the Plan relies on two new reasons for denying
coverage that were not in the administrative record prior to litigation. First, the
Plan covers inpatient occupational, physical, and speech therapy that is
“consistent with the diagnosis and treatment of the patient’s condition.” The
Plan asserts Rossi’s treatment at Eventide and St. David’s does not comport with
this language, concluding Rossi’s care can only be covered under the outpatient
provisions for occupational, physical, and speech therapy. Second, the Plan
relies on its explanation of coverage for hospital admissions, which excludes care
that “could have been provided in a physician’s office, hospital outpatient
department, or lower level of care facility without reduction in the quality of care
provided and without harm to the patient.” The Plan asserts Rossi’s
occupational, physical, and speech therapy can be conducted on an outpatient
basis without harm to Rossi or a reduction in his quality of care.
Rossi and the Plan filed cross-motions for summary judgment. The district
court granted the Plan’s motion and denied Rossi’s motion, holding the Plan did
not abuse its discretion as a matter of law in denying Rossi coverage. Rossi
timely appealed.
II
“We review a district court’s judgment on cross motions for summary
judgment de novo, addressing each party’s motion independently, viewing the
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evidence and inferences in the light most favorable to the nonmoving party.”
Morgan v. Plano Indep. Sch. Dist., 589 F.3d 740, 745 (5th Cir. 2009) (citations
omitted). Summary judgment is appropriate where the movant shows there is
no genuine issue of material fact and the movant is entitled to judgment as a
matter of law. Baker v. Metro Life Ins. Co., 364 F.3d 624, 627 (5th Cir. 2004).
Where, as here, an ERISA benefits plan gives its administrator discretionary
authority, we review the administrative decision for abuse of discretion. Cooper
v. Hewlett-Packard Co., 592 F.3d 645, 651–52 (5th Cir. 2009). Abuse of
discretion is absent where the decision is supported by substantial evidence. Id.
at 652. We review procedural challenges for substantial compliance with ERISA
procedures. Lacy v. Fulbright & Jaworski, LLP, 405 F.3d 254, 257 (5th Cir.
2005).
III
Rossi asserts the Plan did not comply with procedures set out by ERISA,
29 U.S.C. § 1133, by changing its basis for denial on administrative appeal and
by not identifying the independent physician reviewer who recommended denial
on administrative appeal. Rossi did not specify the failure to identify the
physician in his amended complaint; therefore, we do not address this issue. See
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (a complaint must contain sufficient
factual matter to state a claim to relief that is plausible on its face). We agree
with Rossi, however, that the Plan did not substantially comply with ERISA
procedures by changing its basis for denying coverage on administrative appeal.
ERISA mandates certain procedures in reviewing denial-of-benefits
decisions. In relevant part, ERISA provides:
[E]very employee benefit plan shall
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(1) provide adequate notice in writing to any participant
or beneficiary whose claim for benefits under the plan
has been denied, setting forth the specific reasons for
such denial, written in a manner calculated to be
understood by the participant, and
(2) afford a reasonable opportunity to any participant
whose claim for benefits has been denied for a full and
fair review by the appropriate named fiduciary of the
decision denying the claim.
29 U.S.C. § 1133 (2006). We have held, “Section 1133 and its corresponding
regulations require that the Plan: (1) provide adequate notice; (2) in writing; (3)
setting forth the specific reasons for such denial; (4) written in a manner
calculated to be understood by the participant; and (5) afford a reasonable
opportunity for a full and fair review by the administrator.” Wade v. Hewlett-
Packard Dev. Co. L.P. Short Term Disability Plan, 493 F.3d 533, 540 (5th Cir.
2007) (abrogated on other grounds). “To comply with the full and fair review
requirement in deciding benefit claims under ERISA, a claim administrator
must provide the specific grounds for its benefit claim denial.” Cooper, 592 F.3d
at 652 (internal quotation marks omitted).
The Plan did not substantially comply with the “full and fair review”
requirement because it relied on an entirely different ground for denial on
administrative appeal. In denying coverage for Rossi’s stay at Eventide, the
Plan based its decision on the custodial or maintenance nature of Rossi’s care.
Then, in denying coverage for Rossi’s stay at St. David’s, the Plan based its
decision on finding Rossi did not meet the minimum standard of requiring
therapy five days per week and did not have a likelihood of significant
improvement. Only when Rossi administratively appealed these decisions did
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the Plan reverse course and rely on the exclusion for inpatient care solely for
physical therapy.
The Plan relies on Cooper, where we found substantial compliance with
ERISA procedures even though the disabilities benefits plan at issue there
referred to additional evidence on administrative appeal that was absent from
its initial denial. Id. at 654–55. In Cooper, however, the additional evidence
“[did] not provide the [plan] with a different basis for affirming the
Administrator’s initial denial of Cooper’s claim, but rather, it provide[d] the
[plan] with a concrete affirmation that the Administrator’s original assessment
of the medical evidence in the record was correct.” Id. at 654. Here the Plan
relied on an entirely different provision, the physical therapy exclusion, for the
first time on administrative appeal. The exclusion is a different basis for denial,
not additional evidence supporting the initial assessment. In fact, the reasoning
on administrative appeal explicitly abrogates the custodial or maintenance
finding of the Eventide denial and does not even mention the five days per week
or likelihood of improvement findings of the St. David’s denial.
The Plan asserts that even if its reasoning did change on appeal, the
Eventide denial put Rossi on sufficient notice about the ultimate rationale by
stating, “There is not enough clinical information on the physical/occupational
therapy being provided to meet rehabilitation criteria.” As a result, Rossi
provided documentation on his medical condition to the Plan. The Plan relies
on Wade, where we held a plan substantially complied with ERISA despite
procedural errors in part because “[t]he administrator, when making its final
determination to deny Wade’s benefits claims, had in-hand all of the
documentation regarding Wade’s claim.” Wade, 493 F.3d at 540. Wade did not
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address a change in reasoning on appeal and does not dispose of this specific
issue. Rather, the Plan’s assertion that its initial denial substantially complied
with ERISA procedures is specifically foreclosed by Lafleur v. Louisiana Health
Service & Indemnity Co., 563 F.3d 148 (5th Cir. 2009). The plan at issue in
Lafleur initially denied coverage based on an insufficient showing by the patient
that he required more than only custodial care, then switched its reasoning on
appeal and based the denial on an exclusion in coverage. Id. at 155–56. We
held, “Although these various reasons for denial are all generally based on the
Custodial Care exclusion, the lack of specificity in the denial letters did not give
Lafleur the fair notice contemplated by the ERISA regulations.” Id. at 156. Like
in Lafleur, here the Plan denied Rossi coverage based on an insufficient showing
then switched its reasoning on appeal to rely on an exclusion. Therefore, the
statement of insufficient showing in the Plan’s initial denial letter is not enough
to establish substantial compliance under Lafleur.
Furthermore, we held in Robinson v. Aetna Life Insurance Co., 443 F.3d
389 (5th Cir. 2006), “that section 1133 requires an administrator to provide
review of the specific ground for an adverse benefits decision.” 443 F.3d at 393.
There, the administrator argued that despite shifting its reasoning for denial on
appeal, “it did review the ultimate decision that Robinson was not totally
disabled.” Id. We held the administrator did not substantially comply with
ERISA’s procedural requirements because “Robinson never had an opportunity
to contest at the administrative level [the] new basis for terminating his
benefits.” Id.1 That holding contemplated two important policies. First, “[t]he
1
We also relied on the administrator’s failure to provide the identity of its reviewer,
in violation of § 1133(2) and 29 C.F.R. § 2560.503-1(h)(3)(iv). Id. It seems the Plan in the
instant case likewise did not provide the identity of the administrative appeal reviewer, but,
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notice requirements of [subsection (1)] help ensure the meaningful review [on
administrative appeal] contemplated by subsection (2).” Id. (internal quotation
marks omitted). Second, “mandating review of the specific ground for a
termination is consistent with our policy of encouraging the parties to make a
serious effort to resolve their dispute at the administrator’s level before filing
suit in district court.” Id. The same policy reasons for disallowing switching
reasons on administrative appeal apply here. Because “[t]he purpose of section
1133 is to . . . ensure meaningful review of [a] denial [of benefits],” Wade, 493
F.3d at 539 (internal quotation marks omitted), and to be meaningful the review
must contemplate the “specific reasons” for denial, Robinson, 443 F.3d at 393,
it is impossible for the purpose of § 1133 to be fulfilled where the Plan denied
Rossi a full and fair review by changing its basis for denial of benefits on
administrative appeal. Therefore, we hold the Plan did not substantially comply
with the procedural requirements of ERISA.
IV
“Remand to the plan administrator for full and fair review is usually the
appropriate remedy when the administrator fails to substantially comply with
the procedural requirements of ERISA.” Lafleur, 563 F.3d at 157 (citing
authorities). This rule is applicable where there is a colorable claim for denial
of benefits. Id. at 158 (citing Gagliano v. Reliance Standard Life Ins. Co., 547
F.3d 230, 240 (4th Cir. 2008)). An exception applies where the denial was an
abuse of discretion because the evidence clearly shows the denial was arbitrary
as discussed above, Rossi waived this issue by not including it in his amended complaint.
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and capricious. Id.2 A denial is arbitrary and capricious in the ERISA context
when it is not supported by concrete evidence in the record. See Vega v. Nat’l
Life Ins. Servs., Inc., 188 F.3d 287, 302 (5th Cir. 1999) (abrogated on other
grounds). When that is the case, granting summary judgment for the plaintiff
is appropriate, as it was in Robinson, 443 F.3d at 396.
Here, remand to the Plan is appropriate to give the parties an opportunity
to fully develop the record in order for the Plan to determine whether the care
Rossi is seeking falls within the Plan’s coverage. The record on appeal does not
clearly indicate which of Rossi’s medical records the Plan had available at the
various administrative proceedings, and the Plan should consider Rossi’s
medical records to determine whether the care he seeks is consistent with the
Plan, whether at a hospital or a rehabilitation facility. Therefore, on remand
Rossi may offer any evidence in response to the Plan’s contentions.
V
For these reasons, we VACATE and REMAND to the district court for
entry of an order remanding the case to the Plan for a full and fair review.
2
The general rule may also be subject to exception where remand is a useless
formality–for example, in the event of the plaintiff’s death that prevents presentation of
further evidence on remand. Id. at 158 n.22.
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