FOURTH CIRCUIT RULES AGAINST PLAN ADMINISTRATOR IN NEW ERISA DECISION
On Monday, October 23, the Fourth Circuit gives an ERISA plan claimant a victory of sorts, involving claimed benefits for a cochlear implant. But the Fourth taketh away as well, as the district court’s award of attorney’s fees to the claimant is reversed. The case is Carolina Care Plan v. McKenzie, and arises in the District of South Carolina.
McKenzie suffers from a significant hearing disability that is not remediable by hearing aids. When she sought approval from her employer’s health plan for the use of cochlear implants to enable her to hear, her physician went to bat for her, noting that the implants were the only way to address this type of disability.
The plan administrator found that the implants were not covered, citing exclusions within the plan that seemed to it to apply. One excluded “comfort or convenience” items such as televisions, “beauty/barber service” (no kidding; it says that), and “devices and computers to assist in communication and speech.” Another exclusion prohibited payment for hearing aids. The administrator reasoned that these implants were essentially the same as hearing aids, and were emphatically for the purpose of assisting in communication.
McKenzie sued, and found a sympathetic audience in the district court. It ruled in her favor on the merits of the claim, and tagged on an unspecified attorney’s fee award. Today, on appeal, the Fourth Circuit gives each side half a loaf.
McKenzie wins the underlying claim for benefits. In reaching this conclusion, the appellate court makes several pronouncements that will be of interest to attorneys litigating this type of claim. First, it finds that the administrator has an inherent conflict of interest, since it is both the insurer (liable for any payout under the plan) and the administrator who interpreted the plan’s provisions. That conflict is one of the factors the courts take into account in applying the usually deferential abuse of discretion standard to administrators’ interpretations of policy language. The review is still for abuse of discretion, but it’s a bit more focused, given this conflict. The court calls it a “modified abuse of discretion standard,” stating that in such a case, the plan’s interpretation “will be upheld if it is reasonable.”
The court next rejects the administrator’s argument that the rule of contra proferentum should not apply. (Not up on your Latin? That’s the rule that says that any ambiguous language in a contract should be construed against the party who drafted it.) The plan could have used specific language to exclude cochlear implants (which are, in fact, quite different from hearing aids), but it did not. Again, that isn’t the end of the inquiry, but it does tilt the playing field slightly in McKenzie’s direction. Given the combination of these two factors, the court finds that the district court’s determination was correct, and that the plan administrator abused its discretion in denying the claim.
But that was just one battle in the war; the plan wins the other battle when the court rules that no attorney’s fees should have been awarded. There are five factors in this calculus; the district court resolved four of those in favor of McKenzie. But the Fourth Circuit agrees on only one (that the plan had the financial ability to pay the fee award), and finds that the other four offer no support for a fee award. McKenzie thus gets her implants, but her attorneys go away empty-handed.
Given the cases the court cites in today’s opinion, I don’t see this ruling as breaking a great deal of new ground, but the combination of the two factors makes for a interesting, and ultimately cite-worthy, discussion.