As courts continue to closely scrutinize discretionary language in ERISA plans, and states seek to ban such language all together, it is more important than ever for plans to ensure that there is no ambiguity in the discretionary grant in the plan documents.  This was evidenced once again in a recent decision in the First Circuit when the court held that Blue Cross Blue Shield of Massachusetts (“BCBS”) had not appropriately reserved discretion in an ERISA-governed plan, and therefore, the case should have been reviewed under the de novo standard.

In Stephanie C. v. Blue Cross Blue Shield of Massachusetts HMO Blue, No. 15-1531, 2016 U.S. App. LEXIS 2693 (1st Cir. Feb. 17, 2016), the plaintiff sued regarding mental illness treatment for her teenaged son that had been denied by BCBS and the U.S. District Court of Massachusetts granted summary judgment to BCBS when it determined, using the arbitrary and capricious standard of review, that the denial was reasonable. The Plan’s subscriber certificate stated that coverage under the Plan remained subject to BCBS’s determination that treatments were “medically necessary.” In addition, the Plan’s “premium account agreement,” (“PAA”) which formed part of the agreement between the plan administrator and BCBS, but which had not been previously disclosed to the plaintiff, named the father’s employer as the plan fiduciary and BCBS as the claims fiduciary and stated BCBS “is the fiduciary to whom [the employer] has granted full discretionary authority” and that “all determinations of [BCBS] . . . will be conclusive and binding on all persons unless it can be shown that [a particular] determination is arbitrary and capricious.”

The son had been enrolled in several programs that his parents hoped would help alleviate his extreme anti-social behavior, one of which was a private school treatment center in Utah called Gateway Academy. The father’s employer submitted three sets of evaluation tests from Gateway to BCBS for payment and they were paid as a “one-time exception” since Gateway was a non-covered provider but Gateway also submitted a number of charges on its own related to residential services rendered to the son, which were denied because, among other things, BCBS determined that the treatments were not medically necessary. This denial was eventually formally contested through BCBS’s internal review process during which documentation from various of the son’s therapists, educators and evaluators was submitted. Based at least in part on a review of the record by a psychiatrist reviewer, BCBS upheld the initial denial, which was challenged in the Massachusetts District Court, which granted summary judgment to BCBS.

On appeal, plaintiff argued that the certificate’s “medically necessary” language did not constitute a clear grant of discretionary authority and since the PAA was never disclosed it could not be used to grant discretion to BCBS. The appeals court agreed with plaintiff because it determined that the certificate’s statement that that coverage under the Plan remained subject to BCBS’s determination that treatments were medically necessary was not a clear grant of discretionary authority, i.e., was ambiguous, and was, at best, a “subtle inference.” It also determined that the ambiguity could not be cured by the PAA because that document had not been disclosed to the plaintiff at the time coverage attached. As such, the court remanded the case to the trial court with instructions that it reconsider the denial under the de novo standard of review, a situation that most likely would have been avoided by simply stating in the plan documents provided to plan participants that BCBS had discretion to interpret the plan’s terms when making claims decisions.

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