Ana Martinez v. The Beverly Hills Hotel and Bungalows Employee Benefit Trrust Employee Welfare Plan, No. 2:2009cv01222 - Document 55 (C.D. Cal. 2010)

Court Description: FINDINGS OF FACT AND CONCLUSIONS OF LAW; ENTRY OF FINAL JUDGMENT by Judge Stephen V. Wilson, The counterclaim brought by Counterclaimant (The Beverly Hills Hotel and Bungalows Employee Benefit Trust Employee Welfare Plan) isDISMISSED WITHOUT PREJUDIC E.In accordance with the foregoing Findings of Fact and Conclusions of Law, DECLARATORY JUDGMENT is hereby entered in favor of Plaintiff Ana Martinez. It is hereby ORDERED, ADJUDGED, and DECREED that Defendant The Beverly Hills Hotel and Bungalows Employee Benefit Trust Employee Welfare Plan violated Plaintiff Ana Martinezs statutory rights under ERISA. (MD JS-6, Case Terminated). (pj)

Download PDF

Ana Martinez v. The Beverly Hills Hotel and Bungalows Employee Benefit Trrust Employee Welfare Plan Doc. 55 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 CENTRAL DISTRICT OF CALIFORNIA 9 10 11 12 13 14 15 16 ANA MARTINEZ, Plaintiff, v. THE BEVERLY HILLS HOTEL AND BUNGALOWS EMPLOYEE BENEFIT TRUST EMPLOYEE WELFARE PLAN, Defendant. 17 18 THE BEVERLY HILLS HOTEL AND BUNGALOWS EMPLOYEE BENEFIT TRUST, 19 Counterclaimant, 20 v. 21 ANA MARTINEZ, an individual; U.S. BANCORP, a Delaware corporation, d/b/a U.S. BANK, as trustee of the Steve Martinez Special Needs Trust; and ROES 1 though 10, inclusive, 22 23 24 25 26 Counterdefendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CV09-1222 SVW (PLAx) FINDINGS OF FACT AND CONCLUSIONS OF LAW; ENTRY OF FINAL JUDGMENT [JS-6] 27 28 Dockets.Justia.com 1 I. INTRODUCTION 2 3 The Court held a two-day trial on December 9, 2009 and February 3, 4 2010. 5 to apply to Defendant’s benefits determination. 6 following factual findings and thoroughly examined the administrative 7 record, the Court finds that Defendant abused its discretion by 8 unreasonably interpreting and applying the plan when denying 9 Plaintiff’s claim for benefits. The Court heard evidence regarding the proper standard of review Having made the The Court vacates the Plan’s prior 10 determinations and remands the matter to the Plan to make a proper 11 decision on Plaintiff’s claim in the first instance. 12 13 II. FACTUAL BACKGROUND 14 15 Plaintiff Ana Martinez (“Plaintiff”) filed this action under the 16 Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 17 1132(a),(e), and (g), for the purpose of obtaining benefits under an 18 employer-provided health insurance plan administered by defendant The 19 Beverly Hills Hotel and Bungalows Employee Benefit Trust Employee 20 Welfare Plan (“Defendant” or “the Plan”). 21 A. 22 Plaintiff’s 15-year-old son Steve Martinez had a severe epileptic Steve Martinez’s Condition 23 seizure at the school playground on April 18, 2005. 24 seizure, he went into cardiopulmonary arrest and suffered a serious 25 brain injury. 26 2006, at Ex. 2: 103.) 27 encephalopathy, and was designated as “do not resuscitate.” As a result of the (Medical Report of O. Carter Snead III, MD, Dec. 16, He was twice diagnosed with hypoxic-ischemic 28 2 (Id.) He 1 survived, and now lives in a minimally-conscious state and is 2 permanently disabled. 3 ventilator, requires 24-hour supervision, and must fed by a pump. 4 at 104.) 5 (Id. at 95, 105.) He is dependent on a (Id. In a state court trial against the Los Angeles Unified School 6 District, a jury determined that the school’s delayed and ineffective 7 response to Steve’s seizure caused him to suffer his serious brain 8 injuries. 9 against the Los Angeles Unified School District. The jury returned a verdict for $7.6 million jury verdict The jury’s special 10 verdict form categorized the damages award. 11 $7.6 million, the largest amount, $3,676,045, covered “[f]uture 12 medical, nursing, hospital, attendant care, equipment and supply 13 expenses.”1 14 mental suffering/loss of enjoyment of life/physical impairment/ 15 inconvenience/humiliation/emotional distress.” 16 $650,000 was for “[p]ast physical pain/ mental suffering/loss of 17 enjoyment of life/ physical impairment/inconvenience/humiliation/ 18 emotional distress.” 19 [l]ost earnings.” 20 (Id.) (Ex. 11: BHH 731.) Of the Another $2,500,000 covered “[f]uture physical pain/ (Id.) (Id.) An additional The remaining $775,000 covered “[f]uture (Id.) In May 2007, shortly after trial, the parties agreed on a $7 21 million structured settlement, of which $3,676,045 – the exact amount 22 that the jury found to properly account for “[f]uture medical, nursing, 23 hospital, attendant care, equipment and supply expenses” – was placed 24 in a Special Needs Trust to provide for Steve’s future health and 25 welfare. The Special Needs Trust was funded with approximately $1 26 27 28 1 These categories were provided to the jury, and the jury did not further categorize the damages within each category. 3 1 million in cash and an annuity paying $13,769 per month (or $165,228 2 per year), plus 3% annual interest, for the remainder of Steve’s life. 3 (Ex. 4: 1; see also Ex. 2: 113-14.) 4 Steve’s parents to settle future claims for wrongful death and 5 extraordinary care they provided to their son. 6 $5,000 was paid to satisfy Medi-Cal liens, and Plaintiff requested that 7 the state court authorize the Special Needs Trust to pay “any 8 additional amount” owed to Medi-Cal “out of the assets of the Trust.” 9 (Ex. 2: 108.) A payment of $600,000 went to (Ex. 2: 113.) Another Steve’s attorneys recovered the remaining amount of the 10 settlement to cover their fees, court costs, and other litigation 11 expenses. (Id. at 113.) 12 B. 13 The Steve Martinez Special Needs Trust was established under The Steve Martinez Special Needs Trust 14 California Probate Code § 3600 et seq. 15 members of the three-person Trust Advisory Committee, which provides 16 non-binding “recommendations and advice” to the court-approved trustee. 17 (State Court Order Approving Settlement, at Ex. 5: 8.) 18 Plaintiff and her husband are The state court, in its order approving the Special Needs Trust, 19 recited that “Steve Martinez, the minor, has a disability that 20 substantially impairs his ability to provide for his own care or 21 custody and constitutes a substantial handicap. . . . 22 have special needs that will not be met without the Trust proposed 23 herein. 24 that appears reasonably necessary to meet his special needs.” 25 5.) 26 (Steve’s mother) $4,000 per month to cover the cost of nursing care she 27 provided him (id. at 22), and whatever amount was necessary (around He is likely to The money to be paid to the Trust does not exceed the amount (Ex. 5: The Special Needs Trust was also authorized to pay Plaintiff 28 4 1 $700 per month at the time) to pay for private health insurance from 2 Pacific Care (Plaintiff’s husband’s previous insurer). 3 also Ex. 2: 159-160.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Id. at 23; see In addition, the Special Needs Trust recites the purpose of the Trust: The intent and purpose of this trust is to provide a discretionary, spendthrift trust, to supplement public resources and benefits when such resources and benefits are unavailable or insufficient to provide for the Special Needs of the Beneficiary. As used in this instrument, the term ‘Special Needs’ means the requisites for maintaining the Beneficiary’s good health, safety, and welfare when, in the discretion of the Trustee, such requisites are not being provided by any public agency, office, or department of the State of California, or of any other state, or of the United States of America. The funds of the trust may be used as an emergency or backup fund secondary to public resources. Special Needs include without limitation special equipment, programs of training, education and habilitation, travel needs, and recreation, which are related to and made reasonably necessary by this Beneficiary’s disabilities. This is not a trust for the support of the Beneficiary. All payments made under this Trust must be reasonably necessary in providing for this Beneficiary’s special needs, as defined herein. (Ex. 5: 6-7.) The Special Needs Trust also grants the Trustee discretionary powers to distribute Trust assets for Steve’s benefit: The Trustee may distribute from such common fund [constituting the trust estate] to or for the benefit of the Beneficiary during his lifetime, such sums and at such times as the Trustee, in its discretion, determines appropriate and reasonably necessary for the Beneficiary’s Special Needs. In exercising its discretion, the Trustee may take into consideration the recommendations and advice of the Trust Advisory Committee. In making distributions to the Beneficiary for his Special Needs, the Trustee shall take into consideration the applicable resource and income limitations of the public assistance programs for which the Beneficiary is eligible, and the duties of any persons legally obligated to support the Beneficiary. (Ex. 5: at 11.) 26 The Trust specifically explains the method by which the Trust 27 assets leave Steve’s eligibility for public assistance unaffected: 28 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 If the Trustee and the members of the Trust Advisory Committee determine that it is in the best interest of the Beneficiary to make a disbursement which will cause a reduction or elimination of the Beneficiary’s right to receive public benefits, the Trustee and the members of the Trust Advisory Committee shall not be liable for having caused the loss of such benefits. For purposes of determining the Beneficiary’s Medi-Cal eligibility, or Supplemental Security Income (hereinafter referred to as “S.S.I.”) eligibility, or eligibility for other governmental assistance programs, no part of the principal or income of the trust estate shall be considered available to said Beneficiary. In the event the Trustee is requested by any county, state, federal, or other governmental agency, to release principal or income of the trust to or on behalf of the Beneficiary to pay for equipment, medication, or services which Medi-Cal or S.S.I. or some other governmental program is authorized to provide, or in the event the Trustee is requested to petition a court or administrative agency for the release of trust principal or income for any of these purposes, the Trustee is authorized to deny such request and is authorized, in its discretion, to take whatever administrative or judicial steps may be necessary to continue the Medi-Cal or S.S.I. or other governmental program eligibility of the Beneficiary, including obtaining instructions from a court of competent jurisdiction ruling that the principal and income of this trust is not available to the Beneficiary for Medi-Cal or S.S.I. or other governmental program eligibility purposes. (Ex. 5: 13-14.) After Steve’s death, public assistance programs are to be reimbursed for any benefits they provided, and the residual amounts of the Special Needs Trust (if any) will be paid to creditors of the estate or Steve’s heirs. C. (Ex. 5: 11-12.) Plaintiff’s Present Dispute with Defendant In the present action, Plaintiff seeks for the Defendant Plan to pay for Plaintiff’s son’s medical expenses arising out of the seizure and brain injury. (There is no dispute between the parties that the Plan must provide for Steve’s post-injury, unrelated medical needs. See, e.g., Handwritten Notes Titled “meeting with Ana 1/8/08,” at Ex. 1: BHH 1139 (“Steve entitled to benefits for any other condition other than catastrophic incident.”).) In a counterclaim filed by Defendant’s funding trust, Defendant’s funding trust seeks to have the Special 6 1 Needs Trust reimburse the Plan’s funding trust for these expenses if 2 Defendant is forced to pay for these medical needs. 3 D. 4 In the early months of 2008, the Plan received inquiries from 5 Steve Martinez’s health care providers regarding the Plan’s coverage of 6 24-hour nursing care, feeding supplies (as Steve is fed through a 7 tube), a power wheelchair, a broken arm, a cold, and an eye exam. 8 1: BHH 1036; 1132; 1148-49; 1191-92; 1195-96; 1203-04; 1206-07.) 9 Plan paid benefits for the broken arm, cold, and eye exam, as these Plaintiff’s Claim for Benefits (Ex. The 10 costs were unrelated to Steve injuries arising from the 2005 accident. 11 The Plan refused to pay benefits for the nursing care, feeding 12 supplies, and power wheelchair on the ground that they were related to 13 Steve’s 2005 injury, and the costs of those medical needs were 14 satisfied by the 2007 settlement with the school district. 15 7, 2008 letter, at Ex. 1: BHH 971; 1036.) (See Oct. 16 E. 17 When Plaintiff’s son Steve was initially injured, Plaintiff’s Plaintiff’s Previous Health Benefits Plans 18 employer-provided health plan paid for Steve’s medical expenses. 19 that time, the health plan was provided through Blue Cross. 20 did not require Steve’s Special Needs Trust to reimburse Blue Cross for 21 any benefits payments related to the injury. 22 subrogate its claims by executing a lien on Steve’s Trust, even though 23 the Blue Cross Plan included a subrogation/reimbursement provision. 24 Specifically, the 2005 Blue Cross Summary Plan Description stated that 25 Blue Cross had “a legal claim (lien) to get back the costs we covered, 26 if you get a settlement or judgment from the other person or their 27 insurer or guarantor. At Blue Cross Nor did Blue Cross We should get back what we spent on your medical 28 7 1 care.” 2 stated that such a lien would recover no more than 80% of the “usual 3 and customary charges for those services in the geographic area in 4 which they are given,” and would recover no more than one-third of any 5 final judgment or settlement obtained through litigation. 6 545-546.) 7 (Ex. 6: BHH 145.) The July 1, 2007 Summary Plan Description (Ex. 8: BHH According to the Beverly Hills Employee Benefit Trust, Blue Cross 8 admitted that it “screwed up” by failing to obtain a lien on Steve 9 Martinez’s settlement recovery. (Ex. 1: BHH 1095.) Also, Ava White, 10 the Hotel’s Director of Human Resources and the plan administrator for 11 the Blue Cross plan, credibly testified to this Court on February 3, 12 2010 that she instructed Blue Cross to place such a lien and that Blue 13 Cross failed to do so. 14 had in fact placed the lien. At the time, Blue Cross informed White that it 15 F. 16 On January 1, 2008, Plaintiff’s employer, the Beverly Hills Hotel, The Creation of a New Health Benefits Plan in 2008 17 formed a new employee medical benefits plan. 18 plan year, Plaintiff’s employer switched from the Blue Cross plan to a 19 self-funded plan. 20 newly created Beverly Hills Hotel and Bungalows Employee Benefit Trust. 21 There is no evidence suggesting that the employer changed plans for an 22 improper purpose. 23 plan refused to pay for Steve’s medical expenses. 24 Beginning with the 2008 This new plan was administered and funded by the Nevertheless, after the change to the new plan, the As attested at the February 3, 2010 trial, the Hotel began 25 considering a change in late 2006. 26 Janet Jacobs, and Director of Human Resources, Ava White, were 27 concerned that Blue Cross would significantly increase their premiums The Hotel’s Director of Finance, 28 8 1 in the future. 2 2007, the Hotel learned that Blue Cross was planning on raising 3 premiums by approximately 30% for the 2008 plan year. 4 Jacobs, the increased premiums were a result of increased costs faced 5 by Blue Cross’s pooling of costs among a large number of employers. 6 the Hotel’s knowledge, the increased premiums were not related to any 7 particular claims made by the Hotel’s employees. Their concerns proved well-founded. In the spring of According to 8 Once the Hotel learned about the potential increase, the Hotel 9 To began serious discussions with its broker to consider alternatives. 10 Based on the evidence presented at trial on February 3, the Court finds 11 that the Hotel’s purpose was not to decrease the Hotel’s benefits 12 expenses, but rather to avoid increases such as the 30% proposed 13 increase from Blue Cross. 14 Throughout 2007, the Hotel considered a number of potential 15 replacement plans, and finally settled on using a self-funded plan. 16 Through the self-funded plan, all of the health benefits are paid by 17 the Hotel to a separate trust fund, which then funds the plan. 18 trust fund (The Beverly Hills Hotel and Bungalows Employee Benefit 19 Trust) is funded solely by the Hotel. 20 monthly basis at a rate fixed by actuarial data prepared by the Plan’s 21 broker Craig Kinghorn. 22 consideration of the actual benefits paid out in a given period. 23 The Funds are sent to the trust on a The funds are deposited to the trust without The Plan’s costs are contained through the use of “stop-loss” 24 insurance, which is effectively a form of reinsurance. 25 Janet Jacobs, the Hotel’s stop-loss insurance is triggered when a plan 26 beneficiary makes a claim greater than $100,000 in a single year 27 arising out of a single incident. According to Jacobs believes that, were Steve 28 9 1 Martinez covered, the stop-loss insurance would cover any benefits paid 2 on his behalf arising out of the 2005 accident to the extent that the 3 benefits exceeded $100,000 annually. 4 The key Hotel personnel explained that, although they knew of 5 Steve Martinez’s condition at the time that they decided to change 6 plans, they did not know the specific financial details of Steve’s 7 settlement. 8 they were unaware of Steve Martinez’s health costs and did not take 9 Steve’s condition into consideration when deciding to switch plans. Importantly, both Jacobs and White credibly testified that 10 When they switched plans, their central goal was to achieve a level of 11 cost-stability and cost-containment that was unavailable in the Blue 12 Cross plan. 13 As things turned out, the self-insured plan successfully achieved 14 the Hotel’s goal of cost-stabilization. 15 of Finance, testified that the Hotel’s costs stayed roughly similar 16 from 2007 to 2008, and she estimated that from 2008 to 2009 the Hotel’s 17 costs increased from approximately $4 million to approximately $4.3 18 million. Jacobs, the Hotel’s Director 19 G. 20 In the fall of 2007, Julie Wohlstein of Community Administrators The Plan’s Interactions with Plaintiff in 2008 21 (the claims administrator for the new plan2) held a number of mandatory 22 information sessions in which she informed the Hotel’s employees about 23 the new plan. 24 Wohlstein approached Plaintiff after noticing that Plaintiff was 25 distraught at the prospect of the new Plan. (See Ex. 12.) Plaintiff attended one of these sessions. To follow up on this 26 27 28 2 For a discussion on the claims administrator’s role and its relationship to the Plan, see the discussion infra regarding the appropriate standard of review. 10 1 initial meeting, Wohlstein and Plaintiff had a further meeting in early 2 January. 3 Following the early January meeting, the Plan refused to process 4 Plaintiff’s requests for benefits relating to Steve’s accident-induced 5 medical condition unless Plaintiff signed a lien against the Special 6 Needs Trust. 7 lien, and asked Plaintiff to provide background information regarding 8 the causes of Steve’s injury and the alternative funding sources 9 available to pay his medical costs. Julie Wohlstein sent Plaintiff a copy of the proposed Wohlstein’s letter to Martinez 10 explained that the Plan’s “Right of Reimbursement” provision permitted 11 the Plan to “recover benefits paid by the Plan that would be or have 12 also been paid by any person or organization responsible for causing 13 the injury or disease or from their insurance company.” 14 JW to AM, Jan. 9, 2008, at Ex. 1: BHH 1129 (paraphrasing Plan 15 language).) 16 of Reimbursement’ provision of . . . [the Plan] of which I am a 17 participant[,] I hereby agree to reimburse and pay promptly to the Plan 18 an amount not to exceed the aggregate amount of benefits paid to or to 19 be paid to me or my providers of services under said Plan for charges 20 incurred as a result of injury or disease sustained on or about 2005, 21 out of any recovery by settlement, judgment or otherwise, from any 22 person or organization responsible therefor, or from such person’s or 23 organization’s insurance carrier. . . . 24 no release or discharge has been given with respect to my right of 25 recovery described herein and that I have done nothing to prejudice 26 said rights.” 27 (Letter from The attached lien provided: “In accordance with the ‘Right I represent and warrant that (Ex. 1: BHH 1131.) Plaintiff declined to sign the lien. 28 11 Plaintiff told Wohlstein 1 that her son’s “trust does not cover medical expenses.” 2 to JW, Jan. 11, 2008, at Ex. 1: BHH 1133.) 3 son’s settlement was related to lost future earnings and loss of 4 companionship, not future medical expenses. 5 administrative officers of Hotel, Jan. 9, 2008, recapping Jan. 8, 2008 6 meeting, at Ex. 13: BHH 803; handwritten notes titled “meeting with Ana 7 1/8/08,” at Ex. 1: BHH 1138.) 8 sources of funds were available to pay for Steve’s medical needs: the 9 Plan; her husband’s Pacificare health insurance (provided through (Email from AM Plaintiff stated that her (Email from JW to Plaintiff informed the Plan that three 10 operation of the Consolidated Omnibus Budget Reconciliation Act 11 [“COBRA”]); and Medi-Cal. 12 Administrators, at Ex. 1: 1128.) 13 (Incident Report, filed by AM with Community Wohlstein responded by informing Plaintiff that the Plan would 14 have to investigate these facts itself: “In order for us to complete 15 our review to determine Steve’s eligibility for benefits, we do need to 16 formally verify/determine (either with the [Special Needs] Trust 17 directly or a legal representative on your behalf) that there are no 18 monies available or that have been set aside for the provision of his 19 future medical care/expenses.” 20 Ex. 1: BHH 1133.) 21 (Email from JW to AM, Jan. 11, 2008, at Immediately following these initial discussions, Plaintiff 22 provided the Plan with contact information for the IBAR Settlement 23 Company, which is involved in structuring the Special Needs Trust. 24 (Email from AM to JW, Jan. 11, 2008, at Ex. 1: BHH 1133.) 25 Wohlstein contacted Georgine Craven of IBAR Settlement and discussed 26 the nature of the Steve Martinez Special Needs Trust. 27 JW to Georgine Craven, Jan. 15, 2008, at Ex. 1: BH 1123.) 28 12 Julie (See email from On January 1 23, 2008, Craven (on IBAR’s behalf) responded to Wohlstein with a 2 letter summarizing the Steve Martinez Special Needs Trust. 3 the Special Needs Trust document was attached to this letter. 4 BHH 1106.) 5 the opinion that “the settlement was not intended to pay for medical 6 care, but rather care not covered by health insurance or public 7 benefits. 8 injuries and should therefore not be subject to a lien for future care. 9 . . . 10 A copy of (Ex. 1: Craven admitted that she was not an attorney but proffered The intent of the settlement was to compensate Steve for his Even in it’s [sic] broadest sense, normal medical care would not be considered a special need.” (Id.) 11 H. 12 Having received the relevant Special Needs Trust documents, the Defendant’s Failure to Retain Counsel 13 Plan began searching for an attorney to provide advice with respect to 14 Plaintiff’s request for benefits. 15 February 2008 refer to an ongoing search for counsel and the desire 16 that a conflicts check be performed as soon as counsel was chosen.3 17 (See email from JW to JJ, AW, CK, Jan. 30, 2008, at Ex. 13: BHH 776; 18 email from JW to AW, Feb. 7, 2008, at Ex. 1: BHH 1074.) 19 process, Janet Jacobs expressed the desire that the attorney, once 20 selected, “can . . . hopefully clarify with the administrator of 21 Steve’s Trust and confirm that those costs associated with the injuries 22 incurred at his school should be covered by Steve’s Trust and in fact 23 is what a portion of the Trust was intended to pay for.” Emails throughout January and Early in this (Email from 24 25 26 27 28 3 Immediately upon receiving the Special Needs Trust documents, Julie Wohlstein misstated to Plaintiff that “That Trust Agreement and all of the benefit parameters/constraints of your program were forwarded and are being reviewed by outside legal and benefit professionals in order to be able to make a determination.” (Email from JW to AM and AW, Jan. 29, 2008, at Ex. 13: BHH 792, emphasis added.) 13 1 JJ to JW, CK, AW, Jan. 30 2008, at Ex. 13: BHH 773.) 2 In a subsequent letter recapping the relevant events, Craig 3 Kinghorn (the Hotel’s broker and drafter of the plan documents) stated 4 to Kantor & Kantor (Plaintiff’s attorneys) that the Beverly Hills 5 Employee Benefit Trust had “retained the services of Brian T. Seltzer 6 of Seltzer, Caplan, McMahon, Vitek [] to provide legal representation 7 related to Ms. Martinez’s claim and oversee the proper handling of Ms. 8 Martinez’s claim as well as any subsequent appeal.” 9 Kantor & Kantor, Oct. 24, 2008, at Ex. 1: BHH 944.) 10 (Email from CK to However, in the written and oral testimony presented to the Court 11 with respect to the question of whether Janet Jacobs was the final 12 decision-making authority, none of the witnesses testified that they 13 contacted legal counsel when deciding the April 2008 denial or the July 14 2008 denial of the appeal. 15 testimony to the effect that the only individuals involved in the final 16 benefits determination were Janet Jacobs, Ava White, Julie Wohlstein, 17 and Craig Kinghorn. 18 not consult with counsel prior to reaching her final decision. In fact, there was clear, credible Janet Jacobs herself even testified that she did 19 I. 20 The remaining material facts are these. Summary of Subsequent Events On April 18, 2008, Julie 21 Wohlstein, on behalf of the Plan’s claims administrator Community 22 Administrators, informed Plaintiff that her benefits claim was denied. 23 Plaintiff appealed. 24 informed Plaintiff that her appeal was denied. 25 offered Plaintiff sixty days to request an appeal in writing to 26 Community Administrators. 27 in September and October 2008, Plaintiff communicated with the Julie On July 20, 2008, Community Administrators The July 20 denial Plaintiff did not file a formal appeal, but 28 14 1 Wohlstein and the Plan regarding her options for obtaining health 2 insurance coverage (as the family’s COBRA health insurance, obtained 3 through Plaintiff’s husband, was set to expire). 4 2008, Plaintiff retained counsel and soon after brought this suit 5 seeking reinstatement of benefits. 6 In early October In the meantime, on October 7, 2008, the Plan informed one of 7 Plaintiff’s medical providers, LifeCare Solutions, that the Plan would 8 not pay for Steve’s “durable medical equipment and Enteral feeding 9 supplies.” (Ex. 1: BHH 971.) The Plan informed LifeCare Solutions that 10 it should bill Medi-Cal for those services and equipment. 11 appears that these costs are among the most significant benefits 12 currently being litigated. 13 J. 14 16 It Specific Contents of Denial Letters 1. 15 (Id.) The First Denial In explaining its initial denial4 of Plaintiff’s claim on April 18, 2008, the Plan’s claims administrator wrote in pertinent part: 17 19 Please be advised that according to the Plan Provisions . . . [on] Page 59, Section A.11 “Coordination With Other Sources of Payment”[,] the claims incurred for home health care services rendered by Lifeline @ Home and subsequent related services have been denied. 20 The basis for the denial is as follows: 21 Item A.11.3 Effect on Benefits 18 22 “Benefits available from this Plan shall always be considered only after all available benefits have been paid from any other coverage, plan, or policy of benefits in which the Covered Participant participates, whether as a member of a group or as an individual, or after reimbursement of the expenses from any other source for which benefits would normally be provided for under this Plan. . . .” 23 24 25 26 27 28 4 The initial denial is not the operative determination for purposes of this Court’s review. (See discussion infra.) 15 1 The Plan does not permit payment for claims if there is a third party who is responsible. There was a third party who accepted responsibility for Steve’s disabling condition and in turn, compensated you for his ongoing medical care. Therefore, you need to look to the Special Needs Trust or the other insurance sources available to him5 for the provision and payment of his ongoing medical services related to his disabling condition. 2 3 4 5 (Ex. 1: BHH 1048.) 6 7 In short, the key fact (from the Plan’s perspective) was that a third party caused Steve’s injury. 8 Plaintiff appealed this determination. 9 2. 10 The Second Denial Because the first decision was subject to a mandatory appeal in 11 order for Plaintiff to exhaust her remedies, the Plan Administrator’s 12 determination on July 20, 2008 is the operative decision. 13 discussion infra.) 14 in pertinent part: 15 In this denial letter, the Plan Administrator wrote According to the . . . Plan Document . . . on Page 60, Section A.11 the “COORDINATION WITH OTHER SOURCES OF PAYMENT” excerpt states: 16 17 “. . . benefits from this Plan are always considered only after all benefits which have been exhausted from any other coverage, plan, or policy for which a Covered Participant is eligible for benefits, whether the Covered Participant is entitled to coverage as a member of a group or as an individual and includes any benefits that would have been payable had a claim been properly made for them.” 18 19 20 21 In addition, on Page 62 (see attached) it states how benefits will be administered in so far as they relate to Item A.11.7 “SUBROGATION” and Item A.11.8 “REIMBURSEMENT PROVISIONS”. 22 23 Therefore, because there was another party who was determined to be responsible for charges which resulting from Steven’s injury/illness [sic – grammar], the Plan upholds their denial of eligibility for benefits for any services relating to the underlying condition of “persistent vegetative state.” 24 25 26 (See (Ex. 1: BHH 1021.) Attached to the letter were two pages from the Plan 27 28 5 Presumably the father’s COBRA insurance policy with Pacificare. 16 1 containing all of the cited provisions, as well as all of the other 2 potentially relevant provisions. 3 4 III. STANDARD OF REVIEW 5 6 7 The following discussion is drawn from the Court’s December 22, 2009 Order re: Standard of Review. 8 A. 9 The basic standard of review of an ERISA plan administrator’s LEGAL STANDARD 10 denial of benefits was articulated by the Supreme Court in Firestone 11 Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114 (1989): “a denial of 12 benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de 13 novo standard unless the benefit plan gives the administrator or 14 fiduciary discretionary authority to determine eligibility for benefits 15 or to construe the terms of the plan.” 16 The key issue, then, is whether “the benefit plan gives the 17 administrator or fiduciary discretionary authority.” 18 depends on the plan’s language. 19 at 114. 20 standard of review from the default of de novo to the more lenient 21 abuse of discretion, the plan must unambiguously provide discretion to 22 the administrator.” 23 955, 963 (9th Cir. 2006) (en banc) (citing Kearney v. Standard Ins. 24 Co., 175 F.3d 1084, 1089 (9th Cir. 1999) (en banc)). 25 requires that the plan documents be “analyzed . . . in detail” to 26 determine whether or not the administrator retains discretion over the 27 relevant decision-making process. Id. This inquiry See Firestone Tire & Rubber, 489 U.S. The Ninth Circuit has explained that “for a plan to alter the Abatie v. Alta Health & Life Ins. Co., 458 F.3d This inquiry Abatie, 458 F.3d at 964 n.3. 28 17 1 Generally, “[t]here are no ‘magic’ words that conjure up discretion on 2 the part of the plan administrator,” and it is sufficient that a plan 3 “grant[] the power to interpret plan terms and to make final benefits 4 determinations.” 5 contra proferentem, ambiguities are construed in favor of the insured, 6 and the insurer must “unambiguously retain[] discretion” in order to 7 benefit from the abuse of discretion standard of review. 8 Standard Ins. Co., 175 F.3d 1084, 1090 (9th Cir. 1999) (en banc) 9 (citing Mogeluzo v. Baxter Travenol Disability Benefit Plan, 46 F.3d Id. at 963 (citations omitted). Per the doctrine of Kearney v. 10 938, 942 (9th Cir. 1995); Bogue v. Ampex Corp., 976 F.2d 1319, 1325 11 (9th Cir. 1992)). 12 Although there are no “magic words” that are required in order for 13 a plan to confer discretion, it appears that words like “discretion,” 14 “construe,” and “interpret” are important indicia of discretion. 15 generally Abatie, 458 F.3d at 963- 964 (citing examples of language 16 granting discretionary authority); see also Sandy v. Reliance Standard 17 Life Ins. Co., 222 F.3d 1202, 1207 (9th Cir. 2000) (discretion 18 conferred if “plan documents unambiguously say in sum or substance that 19 the Plan Administrator or fiduciary has authority, power, or discretion 20 to determine eligibility or to construe the terms of the Plan”). See 21 B. 22 The Plan documents clearly grant Plan Administrator discretionary 23 24 25 26 27 28 THE PLAN DOCUMENTS authority to interpret and apply the terms of the Plan: The Plan Administrator, when acting in their capacity as such, shall have the sole and exclusive right to interpret any and all Plan provisions including, but not limited to, any that are ambiguous, equivocal, vague, unclear or indeterminate. The employer, Affiliated Employers, Agents of the Employer, Covered Participants or other Plan Beneficiary shall rely upon such interpretation by the Plan Administrator as the manifest intention of the Plan. 18 1 (A.1.20, at Ex. 1: BHH 288.) 2 discretion on the “Plan Administrator, when acting in their [sic] 3 capacity as such.” Thus, it is clear that the Plan confers 4 The question addressed at trial was whether the relevant decision- 5 maker, Janet Jacobs, was acting as the Plan Administrator when deciding 6 Plaintiff’s case, and if so, whether Janet Jacobs acted as the final 7 decision-maker. 8 deny benefits, then this Court reviews that decision for abuse of 9 discretion. 10 If the Plan Administrator made the final decision to However, if a third-party made the final decision, then this Court reviews de novo. 11 C. 12 Plaintiff first disputes whether Janet Jacobs was properly 13 designated as the Plan Administrator by the governing plan documents. 14 JANET JACOBS’S ROLE UNDER GOVERNING PLAN DOCUMENTS The Plan defines “Plan Administrator” as “the Beverly Hills Hotel 15 and Bungalows Employee Benefit Trust.” 16 The Plan also defines “Trust” as “the Beverly Hills Hotel and Bungalows 17 Employee Benefit Trust.” 18 (A.2.73, at Ex. 1: BHH 303.) (A.2.90, at Ex. 1: BHH 306.) The Plan also contains “ERISA Information,” which includes 19 relevant contact information. 20 provides contact information for the Beverly Hills Hotel and Bungalows 21 Employee Benefit Trust. 22 the Plan Administrator and named fiduciary” as “Beverly Hills Hotel and 23 Bungalows Employee Benefit Trust, Attention: Janet Jacobs, Authorized 24 Representative.” 25 “[n]ame and address of any trustee or trustees as “Beverly Hills Hotel 26 and Bungalows Employee Benefit Trust, Attention: Janet Jacobs, 27 Authorized Representative.” (A.5, at Ex. 1: BHH 316.) This section Article 5.3 lists the “[n]ame and address of (A.5.3, at Ex. 1: BHH 316.) Article 5.5 lists the (A.5.5, at Ex. 1: BHH 316.) 28 19 The Summary 1 Plan Description likewise lists “Beverly Hills Hotel and Bungalows 2 Employee Benefit Trust, Attention: Janet Jacobs, Authorized 3 Representative” as the “Plan Administrator and named fiduciary” and the 4 “trustee.” 5 433.) 6 (Summary Plan Description, ERISA Statement, at Ex. 1: BHH The final section of the Plan contains a “Signature Page,” in 7 which the Plan Administrator endorses the terms of the Plan. 8 recites that the Plan was “approved and accepted” by the “Beverly Hills 9 Hotel and Bungalows Employee Benefit Trust.” This page The Beverly Hills Hotel 10 and Bungalows Employee Benefit Trust manifested its acceptance through 11 the signature of Janet Jacobs, who is listed in this document (executed 12 on December 28, 2007) as “Director of Finance,” which refers to her 13 position with The Beverly Hills Hotel and Bungalows.6 14 1: BHH 317.) 15 pages. 16 (Art. 6, at Ex. Plan Endorsements A and B contain identical signature (Art. A.12, at Ex. 1: BHH 379; Art. B.12, at Ex. 1: BHH 384.) In the Agreement and Indenture of Trust for the Beverly Hills 17 Hotel and Bungalows Employee Benefit Trust, the list of “Named 18 Fiduciaries” includes “The Trustee,” “The Plan Sponsor,” and “The Plan 19 Administrator.” 20 defined as “[t]he authorized representative or representatives of the 21 Trust (designated by the Employer) holding and managing the fund 22 according to the terms of the Trust Agreement.” 23 1: BHH 269.) 24 individual designated in the Plan as the “Plan Administrator.” 25 III.2(j), at Ex. 1: BHH 268.) (Art. III.2(h), at Ex. 1: BHH 268.) “Trustee” is (Art. III.2(l), at Ex. “Plan Administrator” is defined as “[t]he entity or (Art. The Trust document is signed by Janet 26 27 28 6 The Beverly Hills Hotel and Bungalows Employee Benefit Trust had not been created at the time that the Plan documents were executed on December 28, 2007. 20 1 Jacobs as “Authorized Representative of Trustee.” 2 1: BHH 277.) 3 (Trust, p. 9, at Ex. Thus, it is clear from the governing Plan and Trust documents that 4 Janet Jacobs is the Authorized Representative of The Beverly Hills 5 Hotel and Bungalows Employee Benefit Trust, and is therefore the 6 Authorized Representative of the Plan Administrator. 7 Plaintiff appears to argue that Jacobs status as “Authorized 8 Representative” does not entitle her to act as the “Plan 9 Administrator,” Plaintiff’s argument overlooks the fact that the Plan 10 Administrator is a legal entity (The Beverly Hills Hotel and Bungalows 11 Employee Benefit Trust) that cannot act without the aid of a flesh-and- 12 blood agent. 13 (1988) (“Artificial entities such as corporations may act only through 14 their agents.”) 15 blood “Authorized Representative” who was empowered by the relevant 16 documents to act on behalf of the Plan Administrator. 17 Janet Jacobs and the Plan Administrator are identical for present 18 purposes. 19 Supp. 2d 242, 256-58 (S.D.N.Y. 2008) (“As a corporation, Unum America 20 can only act through its agents, and there is no indication that 21 Nicholas, Leddy and Flaherty were not acting as Unum America’s agents 22 when they made decisions related to plaintiff’s claims. 23 unaware of any authority which requires a corporation acting as an 24 ERISA fiduciary to limit its choice of agents to carry out its 25 obligations absent a controlling contractual obligation.”). Although See, e.g., Braswell v. United States, 487 U.S. 99, 110 In the present case, Janet Jacobs was the flesh-and- Accordingly, Accord Zurndorfer v. Unum Life Ins. Co. of America, 543 F. The Court is 26 D. 27 Plaintiff next asserts that, even if Janet Jacobs was acting as JANET JACOBS’S ACTIONS WITH RESPECT TO PLAINTIFF’S CLAIM 28 21 1 the Plan Administrator, third-party delegatee Community Administrators 2 was responsible for making the final decision to deny Plaintiff’s 3 request for benefits. 4 It is clear from the relevant Plan documents that Community 5 Administrators (the third-party administrative delegatee) was only 6 empowered to make non-discretionary decisions related to plan 7 administration.7 8 Administrators or the Plan Administrator was the final decision-maker. 9 Defendant bears the burden of showing that it is entitled to 10 The important question is whether Community discretionary review. See Sharkey v. Ultramar Energy Ltd., Lasmo plc, 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 The Plan permits the Plan Administrator to delegate certain nondiscretionary authority. In the language of the Plan, “The Plan Administrator may delegate any ministerial or managerial duties and responsibilities it deems appropriate.” (Art. 1.4.2 [Ex. 1, BHH00285], emphasis added.) The Ninth Circuit has held that a plan’s “[l]anguage that establishes only an entity’s right to administer or manage a plan does not confer discretion.” Bogue v. Ampex Corp., 976 F.2d 1319, 1325 (9th Cir. 1992) (citations omitted) (emphasis added), cert. denied, 507 U.S. 1031 (1993); accord Black’s Law Dictionary 28, 1045 (9th ed. 2009) (defining “ministerial act” as “[a]n act performed without the independent exercise of discretion or judgment”; defining “manger” as “a person who administers or supervises the affairs of a business, office, or other organization”). Accordingly, because the Plan only permitted delegation of nondiscretionary “ministerial or managerial duties and responsibilities,” any delegatee’s acts would be reviewed by this Court de novo. Cf. Madden v. ITT Long Term Disability Plan for Salaried Employees, 914 F.2d 1279, 1283-84 (9th Cir. 1990), cert. denied, 498 U.S. 1087 (1991) (holding that delegatee’s actions are reviewed for abuse of discretion if discretionary authority is delegated); accord Arizona State Carpenters Pension Fund v. Citibank, 125 F.3d 715, 721 (9th Cir. 1997) (where delegatee is delegated nondiscretionary functions, delegatee is not an ERISA fiduciary). Further, the record shows that the Plan Administrator only delegated non-discretionary powers to Community Administrators. The Administrative Services Agreement between the Plan and Community Administrators, which is incorporated by reference into the Plan (Addendum Three [Ex. 1, BHH00388]), provides that the Plan is responsible for all final benefits determinations. (See generally Art. 2 [Ex. 9, BHH00652-00656].) 22 1 Lasmo (AUL Ltd.), 70 F.3d 226, 229 -230 (2d Cir. 1995); cf. Shelby 2 County Health Care Corp. v. Majestic Star Casino, 581 F.3d 355, 365-66 3 (6th Cir. 2009) (de novo standard of review where trial court 4 determined that plan administrator had not been responsible for final 5 benefits determination). 6 Defendant acknowledges that Community Administrators was 7 responsible for the initial decision to deny Plaintiff’s request for 8 benefits. 9 is not determinative of the present inquiry. (Ex. 1: BHH 1048.) That decision, communicated to Plaintiff on April 18, 2008, As is 10 discussed in greater length infra, the relevant decision is the one 11 communicated to Plaintiff on July 20, 2008,8 which denied Plaintiff’s 12 appeal of the initial decision.9 13 (Ex. 1: BHH 1021.) At trial, Janet Jacobs described her duties as Authorized 14 Representative of The Beverly Hills Hotel and Bungalows Employee 15 Benefit Trust. 16 “final determinations” on issues such as “benefits, interpretation of 17 the plan, things of that nature.” These duties include overseeing the Plan and making She noted that, “in all cases,” the 18 8 19 20 21 22 23 24 25 26 27 28 Erroneously dated June 20, 2008 in the administrative record. 9 At the second day of trial, Plaintiff suggested that the October 2008 letter from Craig Kinghorn to Kantor & Kantor constituted the operative final benefits determination. This assertion is misguided. Although the July 2008 denial provided a second opportunity to appeal, the appeal was required to be made in writing. There is no evidence that Plaintiff submitted a written appeal, nor was there conclusive evidence that established that Plaintiff submitted an oral appeal. More significantly, the October 2008 letter from Kinghorn was a direct response to the letter from Plaintiff’s counsel from Kantor & Kantor, yet Kantor & Kantor’s initial letter did not purport to be submitting an administrative appeal of the July 2008 determination. Also, Kinghorn’s October 2008 letter, though it includes a subject heading suggesting that it is related to an appeal, does not include any discussion whatsoever of a further appeal, nor does it purport to address any such appeal. 23 1 initial drafts of her work-product are drafted by Community 2 Administrators, but that she retains final authority over the decision. 3 It is true, as Plaintiff points out, that the administrative 4 record contains relatively little evidence of Jacobs’ involvement in 5 the course of events leading up to the July 20, 2008 denial of 6 Plaintiff’s appeal, particularly in the period between the April 18, 7 2008 initial denial and the July 20, 2008 denial on appeal. 8 at trial Jacobs credibly testified to her central involvement in the 9 final decision. 10 However, Jacobs stated that her final decision was informed by her review 11 of the relevant Plan provisions, the relevant facts of Plaintiff’s 12 case, and any other information necessary to decide whether the Plan 13 covers Plaintiff’s request. 14 Administrators provided her with the relevant information, and that she 15 conferred with Ava White (the Human Resources Director of Beverly Hills 16 Hotel and Bungalows), Julie Wohlstein (an employee at Community 17 Administrators), and Craig Kinghorn (the broker who drafted the Plan) 18 in analyzing this evidence. 19 responsible for the final decision as to Plaintiff’s request for 20 benefits. 21 rubber stamp Community Administrators’ initial decision. 22 explained that, out of the appeals she has decided, she reversed 23 Community Administrators’ initial decision roughly 20% of the time. 24 Jacobs stated that Community Jacobs clearly stated that she alone was Notably, Jacobs also testified that she does not merely Jacobs Jacobs’s testimony is corroborated by documentary evidence in the 25 administrative record, which contains a pair of relevant emails. 26 Wohlstein of Community Administrators sent an email dated April 29, 27 2008 (shortly after the initial denial) to Ava White, Janet Jacobs, 28 24 Julie 1 Craig Kinghorn, Mario Jimenez (an employee at The Beverly Hills Hotel 2 and Bungalows), and an additional unidentified person, which said: 3 “Attached please find the letter of appeal just received from Ana [that 4 is, Plaintiff]. . . . 5 BHH 1041.) 6 face-to-face “pow-wows” took place. 7 Will pow-wow with you about next step.” (Ex. 1: Jacobs’s testimony suggests that more than one of these There is also evidence in an early May email in which Julie 8 Wohlstein write to Ava White, Mario Jimenez, and Craig Kinghorn to 9 inform them that Wohlstein had talked with Plaintiff and was in the 10 process of gathering the relevant documents. 11 Jacobs’s testimony suggests that Wohlstein gathered this information 12 and presented it to Jacobs for Jacobs’s final decision. 13 (Ex. 1: BHH 1040.) In short, Jacobs was responsible for the final decision on 14 Plaintiff’s benefits. 15 discretion standard of review. As such, that decision is subject to an abuse of 16 17 IV. CONFLICT OF INTEREST AND PROCEDURAL IRREGULARITIES 18 19 On February 3, 2010, the Court presided over a second day of 20 trial. 21 of Defendant’s conflicts of interest, and the nature of extent of 22 Defendant’s procedural irregularities in handling Plaintiff’s claim. 23 The Court makes the following findings of fact and conclusions of law, 24 and will take these facts into consideration when deciding whether 25 Defendant abused its discretion by denying Plaintiff’s request for 26 benefits. 27 /// The parties presented evidence regarding the nature and extent 28 25 1 A. 2 The Ninth Circuit has rejected its former “sliding scale” approach 3 to the standard of review, but a conflict of interest remains a “factor 4 to be weighed” in the Court’s abuse of discretion analysis. 5 Hartford Life & Acc. Ins. Co., 588 F.3d 623, 631 (9th Cir. 2009). 6 analyzing a conflict of interest, the Court must “adjust[] the weight 7 given that factor based on the degree to which the conflict appears 8 improperly to have influenced a plan administrator’s decision.” 9 Note, however, that the Ninth Circuit has “‘consciously rejected’ the 10 ‘sliding scale metaphor’ that some other circuits had adopted, which 11 involved adjusting the level of ‘deference’ or ‘scrutiny’ in the 12 standard of review itself in proportion to the ‘seriousness of the 13 conflict.’” 14 (alterations omitted, emphasis added). 15 LEGAL STANDARD Montour v. In Id. Montour, 588 F.3d at 631 (quoting Abatie, 458 F.3d at 967) This analysis is highly case-specific. The Supreme Court noted in 16 Metropolitan Life Ins. Co. v. Glenn that the district court must 17 consider the “conflict as a factor in determining whether the plan 18 administrator has abused its discretion in denying benefits [,] and . . 19 . the significance of the factor will depend upon the circumstances of 20 the particular case.” __ U.S. __, 128 S. Ct. 2343, 2346 (2008). 21 court must take conflicts into account even if those conflicts did not 22 affect the plan’s ultimate determination. 23 According to the Supreme Court, evidence of conflicts: The Montour, 588 F.3d at 631-32. 24 should prove more important (perhaps of great importance) where 25 circumstances suggest a higher likelihood that it affected the 26 benefits decision, including, but not limited to, cases where an 27 insurance company administrator has a history of biased claims 28 26 1 administration. 2 vanishing point) where the administrator has taken active steps to 3 reduce potential bias and to promote accuracy, for example, by 4 walling off claims administrators from those interested in firm 5 finances, or by imposing management checks that penalize 6 inaccurate decisionmaking irrespective of whom the inaccuracy 7 benefits. 8 It should prove less important (perhaps to the Glenn, 128 S. Ct. at 2351. 9 Similarly, procedural irregularities must also be taken into 10 account when determining if a plan administrator abused its discretion. 11 In Abatie, the Ninth Circuit held that procedural irregularities must 12 be taken into consideration. 13 conflict of interest, is a matter to be weighed in deciding whether an 14 administrator’s decision was an abuse of discretion.” 15 The court explained that “[w]hen an administrator can show that it has 16 engaged in an ongoing, good faith exchange of information between the 17 administrator and the claimant, the court should give the 18 administrator’s decision broad deference notwithstanding a minor 19 irregularity.” 20 “A procedural irregularity, like a 458 F.3d at 971. Id. at 972. As with conflicts of interest, the inquiry focuses on the 21 significance of the procedural irregularity. 22 procedural irregularity may weigh more heavily.” 23 of cases,” an administrator’s decision to deny benefits should be 24 reviewed de novo if “an administrator engages in wholesale and flagrant 25 violations of the procedural requirements of ERISA, and thus acts in 26 utter disregard of the underlying purpose of the plan as well.” 27 F.3d at 971. “A more serious Id. In a “rare class 458 The Ninth Circuit’s example of this principle is Blau v. 28 27 1 Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir. 1984), abrogation on 2 other grounds recognized by Dytrt v. Mountain State Tel. & Tel. Co., 3 921 F.2d 889, 894 n.4 (9th Cir. 1990). 4 F.3d at 971, “In Blau, the administrator had kept the policy details 5 secret from the employees, offered them no claims procedure, and did 6 not provide them in writing the relevant plan information; in other 7 words, the administrator ‘failed to comply with virtually every 8 applicable mandate of ERISA.’” 9 procedural violations operated as a “substantive harm” on the 10 participants. 11 As explained in Abatie, 458 The Blau administrator’s extensive Blau, 748 F.2d at 1354. The ultimate inquiry remains whether the plan abused its 12 discretion. 13 procedural irregularities, “the court should adjust the level of 14 skepticism with which it reviews a potentially biased plan 15 administrator’s explanation for its decision in accordance with the 16 facts and circumstances of the case.” 17 Abatie, 458 F.3d at 969; Saffon v. Wells Fargo & Co. Long Term 18 Disability Plan, 522 F.3d 863, 868 (9th Cir. 2008)) (emphasis added).10 19 On the other hand, the Ninth Circuit has “‘consciously rejected’ the 20 ‘sliding scale metaphor’ that some other circuits had adopted, which 21 involved adjusting the level of ‘deference’ or ‘scrutiny’ in the In order to account for conflicts of interest and Montour, 588 F.3d at 631 (citing 22 23 10 24 25 26 27 28 The Ninth Circuit distinguishes between a heightened level of “skepticism,” which is appropriate, and a heightened level of “scrutiny,” which is not appropriate. Montour, 588 F.3d at 631. It is admittedly unclear how an enhanced “level of skepticism” is different from an enhanced “standard of review,” but it is wellestablished that the Court must take conflicts of interest and procedural irregularities into account in its final analysis. In light of the Ninth Circuit’s teachings, the Court will exercise the requisite level of skepticism. 28 1 standard of review itself in proportion to the ‘seriousness of the 2 conflict.’” 3 (alterations omitted, emphasis added). Montour, 588 F.3d at 631 (quoting Abatie, 458 F.3d at 967) 4 B. 5 There is a clear structural conflict of interest. FINDINGS AND ANALYSIS REGARDING CONFLICTS OF INTEREST Benefit 6 determinations are made by the same entity that funds the Plan. 7 Janet Jacobs testified and the documents support, the Beverly Hills 8 Hotel funds the Beverly Hills Hotel Trust, which in turn funds the 9 Plan. 10 As In fact, Janet Jacobs serves as both the Hotel’s Director of Finance and as the Plan Administrator.11 11 This is a classic example of a conflict of interest. “A conflict 12 of interest exists ‘where it is the employer that both funds the plan 13 and evaluates the claims.’ 14 benefits is a dollar spent by the employer; and every dollar saved is a 15 dollar in the employer’s pocket.’” 16 Glenn, 128 S. Ct. at 2348) (internal citations and alterations 17 omitted). 18 them, so it has a direct financial incentive to deny claims.” 19 522 F.3d at 868. 20 through a separate trust. 21 a “less significant conflict compared to plans with benefits paid 22 directly by employers.” This is because ‘every dollar provided in Anderson, 588 F.3d at 648 (quoting The employer “both decides who gets benefits and pays for Saffon, This is true even though the Hotel’s funds flow Generally, the use of the separate trust is See Burke v. Pitney Bowes Inc. Long-Term 23 24 25 26 27 28 11 Plaintiff also notes that Janet Jacobs serves as Plaintiff’s direct supervisor, but this fact is not significant. To the extent that this issue is even relevant, Defendant took active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.” Glenn, 128 S. Ct. at 2351. 29 1 Disability Plan, 544 F.3d 1016, 1026 (9th Cir. 2008). 2 case, as Plaintiff notes, the Plan’s administrative services agreement 3 with Community Administrators shows that the plan is funded both by the 4 separate trust and the Beverly Hills Hotel’s “general assets.” 5 agreement states: 6 7 8 9 10 11 But in this The 2.2.5.4. Funding of Payment Account. Plan Sponsor [Beverly Hills Hotel] shall fund the payment account from a trust account, the Plan Sponsor’s general assets, or combination of the two, in the amount requested by Contract Administrator [Community Administrators] within two days of such funding request. (Ex. 9: BHH 658, emphasis added.) Accordingly, the employer’s use of a separate trust does not ameliorate the conflict. When weighing the conflict of interest, the court looks in 12 particular for “evidence of malice, of self-dealing, or of a 13 parsimonious claims-granting history.” 14 Ninth Circuit has explained the nature of this analysis: Abatie, 458 F.3d at 968. The 15 We weigh such a conflict more or less heavily depending on what 16 other evidence is available. 17 level of skepticism if there’s no evidence of malice, of self- 18 dealing, or of a parsimonious claims-granting history. 19 weigh the conflict more heavily if there’s evidence that the 20 administrator has given inconsistent reasons for denial, has 21 failed adequately to investigate a claim or ask the plaintiff for 22 necessary evidence, or has repeatedly denied benefits to deserving 23 participants by interpreting plan terms incorrectly. We view the conflict with a low But we may 24 Saffron, 522 F.3d at 868 (internal quotations, citations, and 25 alterations omitted). 26 27 Here, there is no evidence of malice, self-dealing, or parsimonious claims-granting. Thus, the structural conflict is less 28 30 1 2 significant than it would be if such evidence had been presented. Nevertheless, the structural conflict is not a meaningless factor 3 in the present case. 4 that she puts the Plan’s interest ahead of the participants’ interests. 5 This is a plain misunderstanding of the requirements of ERISA. 6 Supreme Court recently stated, “ERISA . . . sets forth a special 7 standard of care upon a plan administrator, namely, that the 8 administrator ‘discharge its duties’ in respect to discretionary claims 9 processing ‘solely in the interests of the participants and At the first day of trial, Janet Jacobs testified As the 10 beneficiaries’ of the plan.” 11 U.S.C. § 1104(a)(1) (alteration omitted). 12 Administrator believes that her primary obligation is to the Plan 13 itself rather than the participants, she is not discharging her duties 14 “solely in the interests of the participants and beneficiaries.” 15 light of Janet Jacobs’s misunderstanding of her legal duties, the Court 16 accordingly will examine her actions with more skepticism than it would 17 otherwise exercise. 18 Glenn, 128 S. Ct. at 2350 (citing 29 Obviously, when a Plan In In addition, Defendant has not presented significant evidence that 19 it has “taken active steps to reduce potential bias and to promote 20 accuracy, for example, by walling off claims administrators from those 21 interested in firm finances, or by imposing management checks that 22 penalize inaccurate decisionmaking irrespective of whom the inaccuracy 23 benefits.” 24 testified without contradiction that she “wears two hats” –- one as 25 Director of Finance, and the other as Plan Administrator. 26 not what the Supreme Court had in mind when it recommended “walling off 27 claims administrators from those interested in firm finances.” Glenn, 128 S. Ct. at 2351. 28 31 It is true that Janet Jacobs But this is See id. 1 Informal “hat-wearing” is not a meaningful way to mitigate conflicts. 2 To Defendant’s benefit, Defendant has shown that “its employees do 3 not have incentives to deny claims.” 4 Plan Administrator Janet Jacobs, her colleague Ava White, and the 5 third-party administrative representative Julie Wohlstein all testified 6 that they are compensated through a salary and (where applicable) a 7 bonus that is not tied to the Plan’s claims-processing. 8 they have a personal financial interest in denying Plaintiff’s request 9 for benefits, their interest is so attenuated as to be practically Abatie, 458 F.3d at 969 n.7. The To the extent 10 nonexistent. 11 respect to Plaintiff’s claims were not motivated by personal financial 12 interest or the Beverly Hills Employee Trust’s financial interest. 13 such, Defendant has presented evidence tending to mitigate the Plan’s 14 structural conflict of interest. 15 Further, they credibly testified that their actions with As Defendant also presented testimony regarding the Plan’s “stop- 16 loss” insurance. 17 claims greater than $100,000 per year arising out of a single incident, 18 and Plaintiff has not contradicted this belief. 19 funded by the Hotel, this insurance coverage provides the Hotel with 20 significant protection from extremely large benefits requests (such as 21 Plaintiff’s). 22 interest in reducing benefits payments, the stop-loss insurance 23 qualifies as an “active step[] to reduce potential bias” in the claims- 24 determination process. 25 language of Abatie, the stop–loss insurance “minimized any potential 26 financial gain through structure of its business.” 27 n.7. Janet Jacobs believes that this insurance covers any Because the Plan is Thus, even though the Hotel had a direct financial See Glenn, 128 S. Ct. at 2351. Using the 458 F.3d at 969 This is another factor that mitigates the impact of the Plan’s 28 32 1 2 conflict of interest. Most importantly, the structural conflict of interest had no 3 impact whatsoever on the Hotel’s decision to change plans in January 4 2008 or on the Plan’s decision to deny Plaintiff’s request for 5 benefits. 6 did not create the Plan or administer the Plan in a manner directed at 7 Steve Martinez’s situation. 8 rates under Blue Cross (its previous provider) were subject to 9 significant potential increases from year-to-year. The evidence presented at trial establishes that the Hotel Rather, the Hotel determined that its The Hotel examined 10 a number of potential plans for both 2007 and 2008, and determined that 11 a self-funded plan would provide the Hotel’s desired level of cost- 12 stability and cost-certainty. 13 funded plan did not result in any cost savings; rather, the switch 14 resulted in nearly identical costs as between 2007 and 2008. 15 structural conflict of interest did not have any identifiable effect on 16 the Hotel’s decision to switch to a self-funded plan that did not cover 17 Plaintiff’s claims. Notably, the Hotel’s switch to the self- Thus, the 18 In light of these various conflict-related considerations, the 19 Court will examine the Plan’s decisions with additional skepticism. 20 This is not a case where the conflict of interest is at the “vanishing 21 point,” Glenn, 128 S. Ct. at 2351, as Defendant failed to take even the 22 simplest steps of separating its financial personnel from its benefits 23 personnel. 24 is of “great importance,” id., as Plaintiff has not identified any 25 evidence that Defendant’s conflict affected this particular claims 26 determination or that Defendant has a history of biased or improper 27 claims determinations. However, this is not a case where the conflict of interest Accordingly, the Court will take the Plan’s 28 33 1 basic structural conflict of interest into account, but will not 2 exercise as much skepticism as it would if Plaintiff had introduced 3 evidence that this structural conflict had an effect on the Plan’s 4 decisionmaking. 5 C. 6 Minor procedural irregularities have little effect on the analysis FINDINGS AND ANALYSIS REGARDING PROCEDURAL IRREGULARITIES 7 if the administrator “engaged in an ongoing, good faith exchange of 8 information between the administrator and the claimant.” 9 F.3d at 972. Abatie, 458 However, if the plan administrator’s decision is affected 10 by both conflicts of interest and procedural irregularities, the court 11 must examine their decision with increased skepticism. 12 Circuit has stated: As the Ninth 13 we may weigh the conflict more heavily if there’s evidence that 14 the administrator has given inconsistent reasons for denial, has 15 failed adequately to investigate a claim or ask the plaintiff for 16 necessary evidence, or has repeatedly denied benefits to deserving 17 participants by interpreting plan terms incorrectly. 18 Saffon, 522 F.3d at 868. 19 Here, the Plan engaged in some procedural irregularities.12 The 20 Plan did not comply with ERISA regulations in making a timely benefits 21 determination.13 In communicating the determinations, the Plan did 22 23 24 25 26 27 28 12 In compiling the procedural irregularities, the Court notes that Plaintiff is not suing under 29 U.S.C. § 1132(c)(1)(B) (as amended by 29 C.F.R. § 2575.502c-3) for a $110/day fine arising out of a plan administrator’s failure to provide documents following a valid request for those documents per 29 U.S.C. § 1024(b)(4). 13 The initial decision should have been communicated to Plaintiff within 15 days, 29 C.F.R. § 2560.503-1(f)(2)(iii), but was not actually decided for 81 days. The appeal should have been decided within 60 days, 29 C.F.R. § 2560.503-1(i)(2)(ii)-(iii), but was not 34 1 provide Plaintiff with the proper information regarding Plaintiff’s 2 appeal rights,14 did not provide Plaintiff was the proper amount of time 3 in which to appeal,15 and did not provide Plaintiff with the proper 4 documentation of the Plan terms.16 5 the Plan documents, the Plan requested a copying fee of 70 cents per 6 page, which far exceeds the regulatory maximum of 25 cents.17 7 its determinations, the Plan failed to provide the relevant plan 8 provisions to Plaintiff free of charge as is required.18 When Plaintiff requested copies of In making The Plan also 9 10 decided for 64 days. 11 14 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The letters to Plaintiff failed to include the required “description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary,” and “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review.” 29 C.F.R. § 2560.503-1(g)(2)(iii)-(iv); 29 C.F.R. § 2560.503-1(j)(2)-(4). 15 ERISA group health plans must “[p]rovide claimants at least 180 days following receipt of a notification of an adverse benefit determination within which to appeal the determination.” 29 C.F.R. § 2560.503-1(h)(3)(I). The Plan only provided Plaintiff 60 days to appeal. 16 When a decision is being reviewed, “a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” 29 C.F.R. § 2560.503-1(h)(2)(iii). 17 The maximum reasonable copying rate is 25 cents per page. 29 C.F.R. § 2520.104b-30(b). Throughout its interactions with Plaintiff, Defendant insisted that the Department of Labor’s prescribed rate was 70 cents per page. Not only was Defendant incorrect about the applicable regulation, but Defendant failed to acknowledge that the regulation limits the amount to the actual copying rate. The regulatory rate sets a ceiling, and plans are not permitted to charge the regulatory rate if their actual costs are lower. See McDonald v. Pension Plan of NYSA-ILA Pension Trust Fund, 320 F.3d 151, 163-64 (2d Cir. 2003). 18 See footnote 14 supra. 35 1 failed to inform Plaintiff of her right to inspect the relevant plan 2 documents at the Hotel’s offices.19 3 Most notably, when Plaintiff requested the plan documents in May 4 2008, the claims administrator informed her that the 180-page-long Plan 5 document would cost 70 cents per page ($126 in total), and also that 6 Plaintiff would be better off viewing the employee-friendly summary 7 plan document – but that the summary plan document would not be 8 available for another month or two. 9 2008, Ex. 1: BHH 1033.) (Email from JW to AM, May 20, This lengthy delay in producing and making 10 available the summary plan document constitutes a clear violation of 11 ERISA procedures, which require summary plan documents to be provided 12 to employees within 60 days of any material alteration in benefits. 13 U.S.C. § 1024(b)(1)(B). 14 Plan Description was not provided to participants until June 2008, and 15 the record suggests that the final revised version was not provided 16 until October 2008. 17 Description is a procedural irregularity that must be taken into 18 account, but its impact is significantly lessened by the fact that the 19 Plan’s agents engaged in a good faith effort to inform Plaintiff of the 20 relevant Plan terms. 21 1064, 1075 (9th Cir. 2005) (“Individual substantive relief under ERISA 22 is available where an employer actively and deliberately misleads its 23 employees to their detriment.”) (emphasis added).20 29 As Ava White testified, the initial Summary The Plan’s failure to provide the Summary Plan See Peralta v. Hispanic Business, Inc., 419 F.3d 24 19 25 26 27 28 29 U.S.C. § 1024(b)(2). 20 Plaintiff attempts to argue that the Plan’s failure to provide Plaintiff with a copy of the 2008 Plan or a summary plan description prevents it from applying the terms of the 2008 Plan to Plaintiff’s request for benefits. Plaintiff’s sole authority for this proposition is ACS/Primax v. Polan ex rel. Polan, No. 07-0170, 2008 36 1 The Plan engaged in another type of irregularity: it requested 2 that Plaintiff sign an unenforceable lien. 3 that it would not process Plaintiff’s benefits claim unless she signed 4 the lien. 5 it would provide the benefits; it insisted on obtaining the lien as a 6 precondition to even considering Plaintiff’s request. 7 ultimately backed away from its initial position and addressed 8 Plaintiff’s claim on the merits even though Plaintiff never signed the 9 lien. The Plan initially asserted The Plan refrained from informing Plaintiff whether or not The Plan Nevertheless, the Court notes that the Plan acted improperly by 10 proffering the lien document to Plaintiff. 11 irrelevant to the Plan’s final July 20, 2008 determination, but the 12 Plan’s initial use of the lien was procedurally improper. 13 Ultimately, the lien was There is caselaw suggesting that a Plan may, in its discretion, 14 require a participant to sign a reimbursement agreement before 15 obtaining reimbursable benefits. 16 1519-20 (11th Cir. 1997). 17 insisted that Plaintiff sign a legally invalid and impossible lien. 18 Plaintiff did not personally receive any settlement funds related to 19 Steve’s medical care, yet the lien purported to hold Plaintiff 20 personally liable for benefits paid for such medical care. 21 not permit a plan to hold a participant personally liable for 22 reimbursement; an ERISA plan may only seek equitable relief via a 23 constructive trust on funds directly traceable to a particular fund or 24 account. See Cagle v. Bruner, 112 F.3d 1510, But in the present case, the Plan improperly ERISA does Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 25 26 27 28 WL 5213093 (W.D. Pa. Dec. 12, 2008). This case is addressed in greater detail infra, but suffice to say for present purposes that the case does not support Plaintiff’s reading of it. 37 1 (2002).21 2 Steve’s medical care, so the Plan would not be permitted to impose a 3 constructive trust on Plaintiff’s personal funds.22 4 5 Here, Plaintiff did not receive settlement funds related to The lien was also improper because it required Plaintiff to warrant that “no release or discharge has been given with respect to my 6 7 21 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In Knudson, an ERISA plan participant was injured in a car accident and recovered a $650,000 settlement, of which a residual $250,000 was placed in a special needs trust. The ERISA plan had expended about $400,000 in providing medical care to the participant, and brought suit against the plan participant seeking reimbursement of the medical costs incurred. The Court held that 29 U.S.C. § 1132(a)(3) only permits civil actions for equitable relief, and that the soughtafter personal judgment was not an equitable remedy. The Court explained: The basis for petitioners’ claim is not that respondents hold particular funds that, in good conscience, belong to petitioners, but that petitioners are contractually entitled to some funds for benefits that they conferred. The kind of restitution that petitioners seek, therefore, is not equitablethe imposition of a constructive trust or equitable lien on particular property-but legal-the imposition of personal liability for the benefits that they conferred upon respondents. Id. at 214. Later, in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), the Court clarified the scope of equitable relief available under ERISA. The facts were similar to those in Knudson, except that in Sereboff the tort settlement funds were paid directly to the plaintiffs (rather than to a special needs trust) and were retained in a segregated bank account. Applying the straightforward equitable doctrines of constructive trust and equitable liens, the Court held that the plaintiffs’ bank account contained funds directly traceable to the tort settlement. The relief was equitable because the plaintiff had “specifically identified [1] a particular fund, distinct from the [defendants’] general assets [and] [2] a particular share of that fund to which [plaintiff] was entitled.” 547 U.S. at 363-64 (internal citations omitted); see also Administrative Committee for Wal-Mart Stores, Inc. Associates Health and Welfare Plan v. Salazar, 525 F. Supp. 2d 1103, 1111 (D. Ariz. 2007) (applying this two-part test from Sereboff). 22 In its Responsive Trial brief, Defendant argues that the reimbursement provision only held Ana Martinez liable in her capacity as the residual claimant of the Special Needs Trust. The lien document plainly contradicts this assertion. 38 1 right of recovery” by settlement, judgment or otherwise against the 2 third party responsible for Steve’s injury. 3 was impossible — the third party’s liability had in fact been 4 discharged. 5 bind herself to perform an impossible act. 6 Performance of this clause In effect, the Plan was asking Plaintiff to contractually Had the Plan’s final determination been based on the fact that 7 Plaintiff failed to execute the lien, the Plan’s actions likely would 8 have been an abuse of discretion. 9 Supplemental Ret. Plan, 269 F.3d 956, 960 (9th Cir. 2001)) (“an error See Schikore v. BankAmerica 10 of law constitutes an abuse of discretion.”); see also Sluimer v. 11 Verity, Inc., 628 F. Supp. 2d 1099, 1109 (N.D. Cal. 2008) (citing 12 Schikore for this proposition); Miniace v. Pac. Maritime Ass’n, 424 F. 13 Supp. 2d 1168, 1179 (N.D. Cal. 2006) (same); Lundquist v. Cont. Cas. 14 Co., 394 F. Supp. 2d 1230, 1245 (C.D. Cal. 2005) (same). 15 because the Plan’s final decision did not refer to the lien, the Court 16 addresses it only as an additional example of the Plan’s procedural 17 irregularities. 18 However, In addition, the Plan engaged in further procedural irregularities 19 by proffering varying justifications for its decisions. 20 interactions between the Plan and Plaintiff, the claims administrator 21 (acting as the Plan’s agent) suggested that the benefits decision might 22 turn on whether or not Plaintiff executed the proposed lien. 23 the claims administrator’s initial denial of benefits on April 18, 24 2008, Plaintiff’s request was denied because of the Plan’s clause 25 regarding the availability of “any other source for which benefits 26 would normally be provided for under this Plan.” 27 final denial, the Plan (this time acting through the Plan 28 39 In the initial Later, in In the July 20, 2008 1 Administrator) explained that the request was denied for three reasons: 2 first, the Plan’s clause regarding the availability of “any other 3 coverage, plan, or policy for which a Covered Participant is eligible 4 for benefits”; second, the Plan’s subrogation provision; and third, the 5 Plan’s reimbursement provision. 6 It is true, as Plaintiff argues, that Defendant’s justifications 7 for denial were something of a moving target. 8 basis for denial was the coordination of benefits provision, but even 9 within this single provision, the Plan quoted two completely separate The only consistent 10 clauses. 11 additional skepticism because the Plan Administrator “add[ed], in its 12 final decision, a new reason for denial.” 13 Thus, the Plan Administrator’s actions are subject to Id. at 974. Nevertheless, the Plan’s reasons for denial were not last-minute 14 additions made in bad faith. 15 with a new reason for rejecting the claims at the last minute suggests 16 that the claim administrator may be casting about for an excuse to 17 reject the claim rather than conducting an objective evaluation.”). 18 The Plan’s communications with Plaintiff consistently focused on a 19 single issue: the third party’s responsibility for Steve’s injuries and 20 the availability of funds in the Steve Martinez Special Needs Trust. 21 Although the Plan should have informed Plaintiff of all the relevant 22 plan provisions sooner rather than later, Plaintiff was on notice about 23 the Plan’s theory of the case. 24 Cf. Saffon, 522 F.2d at 872 (“[C]oming up It is also noteworthy that the Plan never conferred with legal 25 counsel regarding its decision. 26 fundamentally legal determination — namely, the interaction between the 27 state-court lawsuit, the Special Needs Trust, and the relevant plan Given that the present case involves a 28 40 1 provisions – it would seem necessary for the Plan to engage counsel 2 before reaching its decision. 3 record that the Plan attempted to obtain legal guidance, there is no 4 evidence that they ever succeeded in retaining counsel. 5 Plan Administrator herself testified that she never conferred with 6 counsel. 7 counsel, the Plan’s failure to do so could constitute an additional 8 procedural oversight. 9 Although there are indications in the In fact, the Although ERISA does not require plans to consult legal While these procedural irregularities were widespread, they did 10 not prejudice Plaintiff in her attempt to obtain benefits. 11 did not engage in a “wholesale and flagrant” violation of ERISA 12 procedures such that the Court should exercise de novo review of the 13 Plan’s decision. 14 and flagrant” procedural violations is Blau v. Del Monte Corp., 748 15 F.2d 1348 (9th Cir. 1984), in which the employer kept the plan 16 documents secret and failed to establish any claims procedure 17 whatsoever. 18 of the plan, let alone permit employees to have their benefits claims 19 fairly adjudicated. 20 wholly deprived of their rights under ERISA, and had absolutely no 21 ability to exercise those rights. The Plan As noted supra, the standard example of “wholesale In fact, the employer did not even disclose the existence Id. at 1350-51. In effect, the employees were 22 In the present case, despite the Plan’s various procedural 23 violations, the Plan ultimately informed Plaintiff of the reasons it 24 was denying her claim, informed her of the relevant provisions, and 25 provided her adequate time and opportunity to rebut the Plan’s 26 reasoning. 27 and its agents sufficiently quoted and/or summarized the relevant Plan Throughout the Plan’s interactions with Plaintiff, the Plan 28 41 1 provisions and explained that the existence of the Special Needs Trust 2 was impeding Plaintiff’s recovery of benefits.23 3 provided Plaintiff an opportunity to take a further appeal from its 4 July 20, 2008 decision, but Plaintiff refrained from doing so.24 5 option for a further voluntary appeal mitigates to some degree the 6 procedural irregularities given that Plaintiff was given a “full and 7 fair” opportunity (see 29 U.S.C. § 1133) to examine the plan, formulate 8 a rebuttal, and vindicate her rights under the plan. In fact, the Plan This 9 In summary, Defendant’s decisionmaking process included a number 10 of procedural irregularities, but none of the irregularities affected 11 Plaintiff’s substantive rights. 12 Plaintiff of the ability to be fully informed of the Plan’s 13 justifications for the denial, and Plaintiff was permitted a full and 14 fair opportunity to present her case to the Plan Administrator. 15 the procedural irregularities counsel that the Court examine 16 Defendant’s decision with a moderate degree of skepticism. The irregularities did not deprive Thus, 17 18 23 23 In particular, Julie Wohlstein’s initial January 2008 letter containing the proposed lien provided Plaintiff with notice that the request for benefits depended on the relationship between the Plan and the Special Needs Trust. This information was reemphasized in the April 2008 denial letter. Further, in late March, Plaintiff wrote a memo reflecting a conversation with one of her providers in which Plaintiff was informed that the Plan was focusing on about the “order of benefit determinations” and the funds in the “trust settlement.” (Ex. 1: BHH 1065.) 24 24 19 20 21 22 25 26 27 28 Plaintiff’s failure to take a so-called “voluntary appeal” does not affect this Court’s jurisdiction to review the decision. Under 29 C.F.R. 2560.503-1(l), an ERISA claimant is deemed to have exhausted administrative remedies if the plan fails “to establish or follow claims procedures consistent with” ERISA statutes and regulations. Given the Plan’s various procedural inadequacies, this Regulation applies here. Plaintiff exhausted her administrative remedies, and the July 20, 2008 decision on appeal is the Plan’s final decision. 42 1 D. 2 Ultimately, in light of the Plan’s structural conflict of interest SUMMARY OF CONFLICTS AND PROCEDURAL IRREGULARITIES 3 and the widespread but technical procedural violations, the Court will 4 review the Plan’s decisions under an abuse of discretion standard, but 5 will be “skeptical” per Abatie. 6 7 V. THE PLAN’S BENEFITS DETERMINATION 8 9 After undertaking a “skeptical” review of the Plan’s actions, the 10 Court concludes that the Plan abused its discretion by “constru[ing] 11 provision of the plan in a way that conflict[ed] with the plain 12 language of the plan,” and secondarily by committing “error[s] of law” 13 in its analysis. These shortcoming constitute an abuse of discretion. 14 A. 15 “A plan administrator abuses its discretion if it [1] renders a LEGAL STANDARD 16 decision without any explanation, [2] construes provisions of the plan 17 in a way that conflicts with the plain language of the plan, or [3] 18 fails to develop facts necessary to its determination.” 19 Suburban Teamsters of Northern Ill. Pension Fund Bd. of Trustees, 588 20 F.3d 641, 649 (9th Cir. 2009) (citing Schikore, 269 F.3d at 960). 21 addition, “[a]s a more general matter, an error of law constitutes an 22 abuse of discretion.” Schikore, 269 F.3d at 960 (9th Cir. 2001) 23 (citations omitted). Or, as stated at greater length by the Ninth 24 Circuit: Anderson v. In 25 A plan administrator’s decision to deny benefits must be upheld 26 under the abuse of discretion standard if it is based upon a 27 reasonable interpretation of the plan’s terms and if it was made 28 43 1 in good faith. 2 interpretation of the plan documents is most persuasive, but 3 whether the . . . interpretation is unreasonable. 4 pattern of interpretation is “significant evidence” that the plan 5 administrator acted reasonably in interpreting ambiguous plan 6 language. The question we must ask is not whose A consistent 7 McDaniel v. Chevron Corp., 203 F.3d 1099, 1113 (9th Cir. 2000) 8 (citations omitted); see also Sznewajs v. U.S. Bancorp Amended and 9 Restated Supplemental Benefits, 572 F.3d 727, 734-36 (9th Cir. 2009). 10 B. 11 As a preliminary matter, Plaintiff argues that the 2007 Plan 12 WHETHER THE 2008 OR 2007 PLAN APPLIES document should apply to her claim for benefits. 13 Plaintiff argues that the “Hotel has always been the Plan 14 Sponsor,” and that the only change in 2008 was the “funding of the 15 Plan.” 16 January 2008, the Beverly Hills Hotel and Bungalows Employee Benefit 17 Trust became the Plan Sponsor, and as of January 2008, Plaintiff became 18 a participant in The Beverly Hills Hotel and Bungalows Employee Benefit 19 Trust Employee Welfare Plan. 20 participant in The Beverly Hills Hotel Health and Welfare Plan. 21 Ex. 6: BHH 167.) 22 reflect the fact that the plans are separate legal documents that are 23 operated by separate legal entities. 24 legal authority that would permit the Court to conclude that the 25 different plans and entities were alter egos. 26 27 (Pl.’s Resp. Brief at 1.) Plaintiff is misguided. As of Prior to that date, Plaintiff was a These distinctions are not mere technicalities. (See They Plaintiff offers no evidence or At the second day of trial, Plaintiff hinted at another line of argument. Plaintiff suggested that the pre-2008 plans apply because 28 44 1 Steve Martinez’s injury occurred in 2005, the tort settlement with the 2 School District was completed in 2007, and the current Plan did not 3 take effect until 2008. 4 the plan in effect at the time of the injury or the settlement, 5 particularly in a case where, as here, the plan documents were not 6 available to the participant at the time of the participant’s request 7 for benefits. Plaintiff argues that governing document is 8 Plaintiff’s authorities all involve a distinguishable set of 9 circumstances: in those cases, the ERISA plans retroactively sought to 10 recover benefits already paid to the plan participants. 11 in the present case, the new 2008 Plan prospectively altered the plan 12 language such that Steve Martinez was no longer entitled to recover 13 future benefits from the Plan. 14 In contrast, In one such case (highlighted by Plaintiff at the second day of 15 trial), ACS/Primax v. Polan ex rel. Polan, No. 07-0170, 2008 WL 5213093 16 (W.D. Pa. Dec. 12, 2008), the plan administrator sought reimbursement 17 under an amended plan where the vast majority of benefits had already 18 been paid to the participant. 19 occurred under the original plan, and the plan administrator in fact 20 paid benefits under the original plan. 21 administrator from retroactively seeking reimbursement for already-paid 22 benefits.25 The participant’s injury and settlement The court prevented the 23 24 25 26 27 28 25 As an afterthought, the court also held that the plan could not recover “a relatively small portion of the expenses” (about 5% of the total sum) that had been paid after the amended plan went into effect. The court explained that the plan was responsible for all the costs associated with the injuries that occurred while the old plan was in effect. This Court respectfully disagrees with this aspect of the ACS/Primax court’s holding. As discussed at greater length infra, a 45 1 This Court agrees with the general principle expressed in the 2 ACS/Primax case: a plan may not retroactively recover benefits that 3 have already been paid to the plan participants. 4 established principle, and Defendant does not dispute it. 5 plan simply may not retroactively rescind vested benefits. 6 Wal-Mart Stores, Inc. Associates’ Health and Welfare Plan v. Wells, 213 7 F.3d 398, 403 (7th Cir. 2000) (a plan may not be amended or modified in 8 a manner that “force[s] plan participants and beneficiaries to return 9 benefits already received and spent”) (emphasis added) (citing Member This is a wellAn ERISA See, e.g., 10 Services Life Ins. Co. v. American National Bank & Trust Co., 130 F.3d 11 950, 957-58 (10th Cir. 1997)). 12 In this regard, Plaintiff appears to misconstrue the nature of the 13 Plan’s denial and the impact of the proposed lien provided to Plaintiff 14 in January 2008. 15 the Plan for any funds paid by the plan operated by The Beverly Hills 16 Hotel & Bungalows Employee Benefit Trust. 17 Plaintiff claims that the lien would have “allow[ed] the Plan to 18 recover amounts already paid by Blue Cross, as well as amounts yet to 19 be paid through the Benefit Trust.” 20 Pl.’s Compl. ¶¶ 12-18).) The lien, had it been signed, would have reimbursed (See Ex. 1: BHH 1131.) (Pl.’s Trial Brief at 2 (citing 21 22 23 24 25 26 27 28 plan participant’s rights to future medical benefits do not vest at the time of the injury. Unless the plan provides otherwise, the right to recover medical benefits vests at the time the covered costs are incurred. As the Ninth Circuit explained in Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154 (9th Cir. 2001), a plan participant may not perpetually “invoke the terms of the plan in place when her injury occurred. . . . That she became permanently disabled and filed her disability claim while the first policy was in effect is irrelevant; it does not entitle her to invoke that plan’s provisions in perpetuity.” Id. at 1160. 46 1 However, the proposed lien did not purport to have any retroactive 2 effect, and the Plan’s three reasons for denying Plaintiff’s claims 3 were not retroactive in nature. 4 the Beverly Hills Hotel and Bungalows Employee Benefits Trust Plan any 5 payments that the Beverly Hills Hotel and Bungalows Employee Benefits 6 Trust Plan made for Steve’s health care. 7 was based on the fact that the Beverly Hills Hotel and Bungalows 8 Employee Benefits Trust Plan purportedly does not provide benefits 9 in situations such as Plaintiff’s. Rather, the lien sought to recover for Similarly, the Plan’s denial The Plan simply did not seek to 10 recover amounts already paid by the Blue Cross plan prior to 2008. 11 Rather, the Plan refused to pay benefits from January 1, 2008 forward. 12 As a result, Plaintiff’s arguments fail. 13 The Court notes that there is clear, well-established law that 14 permits ERISA health and welfare plans to amend, alter, and even 15 terminate benefits altogether, so long as the changes occur 16 prospectively rather than retroactively. 17 Paul Revere Life Ins. Co., 237 F.3d 1154 (9th Cir. 2001); McGann v. H & 18 H Music Co., 946 F.2d 401 (5th Cir. 1991). 19 See, e.g., Grosz-Salomon v. For example, in McGann, “the Fifth Circuit made the malleability 20 of welfare benefit plans brutally clear.” 21 at 1160. 22 employer amended the ERISA health plan so that the plan only covered a 23 lifetime maximum of $5,000 worth of AIDS-related expenses. 24 F.2d at 403. 25 paying benefits beyond those provided in the plan in place at the time 26 the plaintiff requested the benefits. 27 does not require . . . vesting of the right to a continued level of the See Grosz-Salomon, 237 F.3d After the McGann plaintiff was diagnosed with AIDS, his McGann, 946 The court held that the employer was not liable for 28 47 The court explained that “ERISA 1 same medical benefits once those are ever included in a welfare plan.” 2 Id. at 405. 3 The Ninth Circuit followed this principle in Grosz-Salomon, 237 4 F.3d at 1160, and reaffirmed it recently in Anderson, 588 F.3d at 650 5 (noting that “ERISA permits employers to cut” benefits available under 6 an employee welfare benefit plan) (citing 29 U.S.C. § 1002(1)). 7 Grosz-Salomon, the plaintiff was an attorney who suffered a disability 8 and was unable to work. 9 during the period when she was out of work to add discretionary In Her employer amended the disability plan 10 language. 11 effect at the time of the plan’s denial of benefits, stating that “an 12 ERISA cause of action based on a denial of benefits accrues at the time 13 the benefits are denied.” 14 quotations omitted). 15 not “invoke the terms of the plan in place when her injury occurred. . 16 . . 17 claim while the first policy was in effect is irrelevant; it does not 18 entitle her to invoke that plan’s provisions in perpetuity.” 19 1160. 20 The court held that the operative plan was the plan in Id. at 1159 (emphasis added) (internal The court explained that the participant could That she became permanently disabled and filed her disability Id. at In light of this caselaw, it is incorrect to argue, as Plaintiff 21 does, that a plan participant who suffers a long-term or permanent 22 injury is permanently entitled to recover under the plan in effect at 23 the time of the injury. 24 do not vest automatically at the time of the injury.26 25 participant’s rights vest at the time that the covered health-care A plan participant’s rights to future benefits Instead, the 26 27 28 26 That is, unless the plan clearly provides for such vesting. The plans at issue in this case clearly did not provide for permanent vesting, and Plaintiff does not argue as much. 48 1 costs are incurred. 2 F.2d at 405, and summarized neatly in Grosz-Salomon, 237 F.3d at 1160. 3 In short, a plan participant is “not entitle[d] to invoke that plan’s 4 provisions in perpetuity.” 5 6 7 C. This is the principle expressed in McGann, 946 Grosz-Salomon, 237 F.3d at 1160. THE COURT MAY ONLY REVIEW THE PLAN’S REASONING IN THE JULY 20, 2008 DENIAL LETTER In addressing the Plan’s actions, the Court looks only to the 8 Plan’s final benefits determination. 9 Ben. Plan, 110 F.3d 1461 (9th Cir. 1997), the court held than an ERISA 10 plan administrator must set forth the reason for denial “with specific 11 reference to the plan provisions that form the basis for the denial.” 12 Id. at 1463. 13 the “general rule that ‘an agency’s order must be upheld, if at all, on 14 the same basis articulated in the order by the agency itself,’ not a 15 subsequent rationale articulated by counsel.” 16 Packard Co. Employee Benefits Organization Income Protection Plan, 349 17 F.3d 1098, 1104 (9th Cir. 2003) (emphasis added) (quoting Fed. Pow. 18 Comm’n v. Texaco, Inc., 417 U.S. 380, 397 (1974)). In Booton v. Lockheed Medical In addressing ERISA claims, the Ninth Circuit has applied Jebian v. Hewlett- 19 Or, as explained in Abatie, “[w]hat the district court is doing in 20 an ERISA benefits denial case is making something akin to a credibility 21 determination about the insurance company’s or plan administrator’s 22 reason for denying coverage under a particular plan and a particular 23 set of medical and other records.” 24 The Abatie court continued: 458 F.3d at 969 (emphasis added). 25 An [ERISA] administrator must provide a plan participant with 26 adequate notice of the reasons for denial, 29 U.S.C. § 1133(1), 27 and must provide a “full and fair review” of the participant’s 28 49 1 claim, id. § 1133(2); see also 29 C.F.R. § 2560.503-1(g)(1), 2 (h)(2). 3 benefits in a final decision, thereby precluding the plan 4 participant from responding to that rationale for denial at the 5 administrative level, the administrator violates ERISA’s 6 procedures. 7 review of the specific ground for an adverse benefits decision.” 8 Robinson [v. Aetna Life Ins. Co.], 443 F.3d [389,] 393 [(5th Cir. 9 2006)]. When an administrator tacks on a new reason for denying “[S]ection 1133 requires an administrator to provide By requiring that an administrator notify a claimant of 10 the reasons for the administrator's decisions, the statute 11 suggests that the specific reasons provided must be reviewed at 12 the administrative level. 13 provided by the administrator allows for a full and fair review of 14 the denial decision, also required under ERISA. 15 an administrator that adds, in its final decision, a new reason 16 for denial, a maneuver that has the effect of insulating the 17 rationale from review, contravenes the purpose of ERISA. 18 procedural violation must be weighed by the district court in 19 deciding whether [the plan] abused its discretion. Id. Moreover, a review of the reasons Id. Accordingly, This 20 Id. at 974 (emphasis added). 21 various subsequent Ninth Circuit decisions have examined the actual 22 reasons stated by the plan. 23 Assurance Co. of Boston, 542 F.3d 1213 (9th Cir. 2008); Saffon, 522 24 F.3d at 870. 25 Notably, the Abatie decision itself, and E.g., Pannebecker v. Liberty Life Thus the Court will only examine the reasoning set forth in the 26 27 28 50 1 July 20, 2008 decision.27 2 D. 3 In the operative denial letter, the Plan explained that it was DISCUSSION AND ANALYSIS OF PLAN’S DECISION 4 relying on three provisions: the “coordination of benefits” provision, 5 the “subrogation” provision, and the “reimbursement” provision. 6 1: BHH 1021.) 7 (Ex. Under the abuse of discretion standard, Defendant is only liable 8 if it “construe[d] provisions of the plan in a way that conflicts with 9 the plain language of the plan,” Anderson, 588 F.3d at 649, or if it 10 committed “an error of law” in reaching its decision. 11 F.3d at 960.28 12 13 Schikore, 269 When construing an ERISA plan’s terms under an abuse of discretion review, the Court will find that the Plan abused its discretion if it 14 15 27 22 The Court wishes to emphasize that it is not reviewing the reasoning and justification set forth in the initial April 18, 2008 denial letter. That letter quoted the following language: “Benefits available from this Plan shall always be considered only after all available benefits have been paid from any other coverage, plan, or policy of benefits in which the Covered Participant participates, whether as a member of a group or as an individual, or after reimbursement of the expenses from any other source for which benefits would normally be provided for under this Plan.” (Ex.1, at BHH 1048.) The language highlighted by Community Administrators may be a sufficient basis for the denial, but the Court is not in a position to reach this conclusion. While this was the reason for the initial denial, it was not set forth as a reason for the final denial. 23 28 16 17 18 19 20 21 24 25 26 27 28 The other two main bases for abuse of discretion are not present in this action. See Anderson, 588 F.3d at 649 (“A plan 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.”) Here, Defendant provided explanations for its actions, and Plaintiff does not allege that Defendant’s decision was based on inadequate fact-finding. Accordingly, these bases for review are irrelevant. 51 1 applied an unreasonable interpretation of plan terms. 2 terms are ambiguous, then the court defers to the plan’s reasonable 3 interpretation. 4 court must apply the unambiguous meaning of those terms, even under an 5 abuse of discretion review. 6 1189, 1194 (9th Cir. 2007); see also Saffle v. Sierra Pac. Power Co. 7 Bargaining Unit Long Term Disability Income Plan, 85 F.3d 455, 458 (9th 8 Cir. 1996) (stating that a plan administrator “abuses its discretion if 9 it construes provisions of the plan in a way that ‘conflicts with the 10 11 If the plan However, if the plan terms are unambiguous, then the See Gilliam v. Nevada Power Co., 488 F.3d plain language of the plan’”). 1. Subrogation 12 The subrogation clause states: 13 This Plan has a right to subrogate for claims it pays. This means if a Covered Participant recovers, or[] has the right to recover monies from any third parties (i.e., insurance policies or claims of any type against any other entity for the same occurrence), the Plan may, solely at its option make a claim for the funds previously paid on behalf of a Covered Participant. This means the Plan has a lien on any amounts a Covered Participant recovers from any third party. Covered participants are required to cooperate fully in the exercise of such subrogation rights, and shall do nothing to prejudice such rights and shall do everything necessary to secure such rights. If the Plan cannot subrogate, it will exercise its right of reimbursement. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (A.11.7, Ex. 1: BHH 378.) Notably, the provision uses only the present and future tenses. At the time the Plan decided Plaintiff’s claim, this provision no longer applied. The provision only applies if “Covered Participant recovers, or[] has the right to recover monies from any third parties.” (Emphasis added.) The effect is that “the Plan has a lien on any amounts a Covered Participant recovers from any third party.” (Emphasis added.) By the time that the Plan was in effect, Plaintiff and her son had 52 1 already recovered from the third party. 2 had already recovered, she no longer qualified under the plain terms of 3 the subrogation provision. 4 “shall do nothing to prejudice such rights and shall do everything 5 necessary to secure such rights.” 6 effect, Plaintiff had already prejudiced the Plan’s rights and could 7 not do anything to assist the Plan in securing its rights. 8 9 In addition, because Plaintiff The provision requires that the participant Again, by the time the Plan took At the second day of trial, the Plan Administrator even admitted that this provision does not apply to Plaintiff. This conclusion is 10 supported by an examination of the language of a neighboring plan 11 clause. 12 that: “The Plan may subrogate but will not be able to if the 13 responsible third party extinguishes its liability to a Covered 14 Participant or is relieved of liability by contract or operation of 15 law. 16 (A.11.9, at Ex. 1: BHH 378, emphasis added.) 17 The “Limitation of Plan Recovery Rights” provision provides The Plan will then exercise its right of reimbursement.” In Plaintiff’s case, the Plan was unable to exercise its 18 subrogation rights because Plaintiff had previously settled her claim 19 against the school district, thus “extinguish[ing]” the school 20 district’s continuing liability. 21 provision, the Plan was obligated to use the reimbursement provision 22 rather than the subrogation provision. 23 Under the plain language of this Thus, per the Plan documents, the Plan improperly relied on the 24 subrogation provision. 25 2. 26 27 Reimbursement The reimbursement clause is also inapplicable. The clause provides that “If a Covered Participant is injured through the act or 28 53 1 omission of another person, the benefits of this Plan shall be provided 2 only if the Covered Participant shall agree in writing [to 3 reimbursement, a lien, and subrogation].” 4 emphasis added.)29 5 accidental bodily injury “sustained by a Covered Individual while such 6 Covered Individual is covered under the Plan.” 7 300, emphasis added.) 8 9 10 (A.11.8, at Ex. 1: 378, Notably, the Plan defines the term “injury” as a (A.2.53, Ex. 1: BHH The reimbursement provision cannot apply to Plaintiff’s son because the Plan did not exist at the time of the injury. By the Plan’s plain language, an “injury” must occur during a time when the 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 The complete reimbursement provision reads: If a Covered Participant is injured through the act or omission of another person, the benefits of this Plan shall be provided only if the Covered Participant shall agree in writing: -to act as the agent for the Plan in seeking and obtaining recovery from third parties; -to hold all recoveries from third parties in constructive trust for the Plan; -to reimburse the Plan to the extent of benefits provided, immediately upon collection of damages by him, whether by legal action, settlement, arbitration, mediation, or otherwise; -to provide the Plan with a Lien and Order Directing Reimbursement to the extent of benefits provided by the Plan, which lien and order may be filed with the person whose act caused the injuries, the Covered Participant’s agent or insurer, the court, or the attorney representing the Covered Participant; and, -that a representative of the Plan shall have the right to intervene in any suit or other proceeding to protect the reimbursement rights hereunder. The Covered Participant shall be responsible for all fees of the attorney handling the Covered Participant’s claim against the third party and all costs incurred by said attorney in pursuit of the Covered Participant’s claim.” (A.11.8, at Ex. 1: BHH 378.) This provision clearly contemplates that any causes of action against the responsible third party have not been extinguished. To the extent that a cause of action is extinguished, the required written agreement would require the Covered Participant to agree to impossible acts such as permitting the Plan to participate in ongoing litigation and negotiations. 54 1 Plan is in effect and the injured person is covered by the Plan. 2 is simply not the case here, so the reimbursement provision is 3 inapplicable. 4 3. 5 That Coordination of Benefits In addressing the lengthy “coordination of benefits” provisions, 6 the Plan’s July 20, 2008 decision relied on a specific “excerpt” quoted 7 in the body of the denial letter. 8 reads: “Benefits from this Plan are always considered only after all 9 available benefits have been exhausted from any other coverage, plan, (See Ex. 1: BHH 1021.) The excerpt 10 or policy for which a Covered Participant is eligible for benefits, 11 whether the Covered Participant is entitled to coverage as a member of 12 a group or as an individual and includes any benefits that would have 13 been payable had a claim been properly made for them.” 14 1: BHH 376.)30 (A.11.1, at Ex. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 The “coordination of benefits” provisions as a whole provide: If an individual covered under this Plan is also covered under one or more other plans or is eligible for reimbursement of expenses for which benefits would normally be provided for under this Plan from any other source, the benefits payable under this Plan will be reduced by those payable under all other plans or other sources so that the total payments under this Plan and all other plans do not exceed 100% of covered expenses. Benefits from this Plan are always considered only after all available benefits have been exhausted from any other coverage, plan, or policy for which a Covered Participant is eligible for benefits, whether the Covered Participant is entitled to coverage as a member of a group or as an individual and includes any benefits that would have been payable had a claim been properly made for them. In no event will the payment under this Plan be larger than would have been made in the absence of this coordination of benefits provision. Benefits payable under all other plans include the benefits that would have been payable had a claim been properly made for them. Benefits provided as a result of concurrent coverage under Medi-Cal or MedicAid are not subject to the provisions of this Section. (A.11.1, at Ex. 1: BHH 376.) 55 1 Simply stated, the quoted language only applies to insurance 2 policies, not the Special Needs Trust. 3 discusses coordination of benefits with another “coverage, plan, or 4 policy.” 5 policy.” 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 The quoted excerpt only The Special Needs Trust is simply not a “coverage, plan, or The Plan specifically defines “plan” in this context in a manner that appears to apply to the phrase “coverage, plan, or policy”: A Plan is any labor-management trusteed plan, union welfare plan, employer organization group plan, school plan, employee benefit organization plan, prepaid group practice, or Blue Cross or Blue Shield plan, by whatever name called, benefits payable under Title XVIII of the Social Security Act of 1965, as amended (Medicare), Parts A and B, and any coverage required or provided by statute, including no-fault auto insurance or similar provisions. Medicare benefits are normally required to be secondary by law. (A.11.2, at Ex. 1: BHH 376.) Even if the Plan’s specific definition of “plan” does not apply to the words “coverage” or “policy,” Black’s Law Dictionary provides a useful reference. Accord Gilliam v. Nevada Power Co., 488 F.3d 1189, 1195 (9th Cir. 2007) (looking to Black’s Law Dictionary to construe plain language of ERISA plan). According to Black’s, “Coverage” is defined as “[i]nclusion of a risk under an insurance policy; the risks within the scope of an insurance policy.” (Black’s, at 422, emphasis 21 22 23 24 25 26 27 28 Benefits available from this Plan shall always be considered only after all available benefits have been paid from any other coverage, plan, or policy of benefits in which the Covered Participant participates, whether as a member of a group or as an individual, or after reimbursement of the expenses from any other source for which benefits would normally be provided for under this Plan. In the event that the Covered Participant is eligible for benefits through a plan or policy which contains a similar provision which places that plan or policy in the position of a secondary payor, the rules establishing the order of benefit determination are . . . [etc. – sets forth priority rules, with the Plan generally taking lowest priority]. (A.11.3, at Ex. 1: BHH 376.) 56 1 added.) 2 insurance.” “Policy” is defined as “[a] document containing a contract of (Black’s, at 1276, emphasis added.) 3 In short, “policy, plan, or coverage” embraces only insurance.31 4 It was therefore unreasonable for the Plan Administrator to construe 5 “policy, plan, or coverage” as embracing the Special Needs Trust, which 6 is a trust, not an insurance policy.32 7 a “right . . . to the beneficial enjoyment of property.” 8 1647. 9 undertakes to indemnify another party . . . against risk of loss, 10 Black’s at In contrast, insurance is a “contract by which one party . . . damage, or liability.” 11 Black’s explains that a trust is Black’s at 870. Needless to say, a “trust” is not a form of “insurance.” It was 12 therefore unreasonable for the Plan to deny Plaintiff’s claim on the 13 basis of this interpretation of the Plan. 14 In addition, there simply is no Plan provision that supports the 15 Plan Administrator’s conclusion that Steve’s claims were excluded 16 “because there was another party who was determined to be responsible 17 18 19 20 21 31 The Court notes that the result might be different if it were engaging in a pure abuse of discretion review without adding any additional skepticism to its review. Had the Plan’s conduct not been marked by procedural irregularities and a structural conflict of interest, the Court would be more willing to credit the Plan’s conclusion that the words “any other coverage” might apply to the Special Needs Trust. 22 32 23 24 25 26 27 28 “A special needs trust is a form of discretionary spendthrift trust designed to preserve public assistance benefits for a disabled beneficiary.” 14 B.E. Witkin et al., Summary of California Law: Wills and Probate § 1072 (2009 update) (emphasis added); see also 22 Cal. Law Rev. Comm., “Recommendation: Special Needs Trust for Disabled Minor or Incompetent Person,” in Annual Report for 1992 989, 993 (1992) (same). A special needs trust “is a trust that is intended to allow the beneficiary to continue to maintain eligibility for certain needs-based government benefits such as S.S.I. or MediCal.” Shewry v. Arnold, 125 Cal. App. 4th 186, 194 (2004) (emphasis added). 57 1 for charges which resulting [sic] from Steven’s injury/illness.” 2 of the cited provisions support this statement. 3 provision do not prevent participants from recovering benefits for 4 costs associated with third-party caused injuries. 5 6 None The cited Plan In short, the Plan abused its discretion by construing the terms of the Plan in an unreasonable manner. 7 8 VI. REMEDY 9 10 11 The proper remedy is explained in Pannebecker v. Liberty Life Assurance Co. of Boston, 542 F.3d 1213 (9th Cir. 2008): 12 [t]he ERISA claimant whose initial application for benefits has 13 been wrongfully denied is entitled to a different remedy than the 14 claimant whose benefits have been terminated. 15 administrator’s initial denial of benefits is premised on a 16 failure to apply plan provisions properly, we remand to the 17 administrator to apply the terms correctly in the first instance. 18 But if an administrator terminates continuing benefits as a result 19 of arbitrary and capricious conduct, the claimant should continue 20 receiving benefits until the administrator properly applies the 21 plan’s provisions. Where an 22 Id. at 1221 (emphasis added); see also Saffle v. Sierra Pacific 23 Bargaining Plan, 85 F. 3d 455, 461 (9th Cir. 1996) (“remand for 24 reevaluation of the merits of a claim is the correct course to follow 25 when an ERISA plan administrator, with discretion to apply a plan, has 26 misconstrued the Plan and applied a wrong standard to a benefits 27 determination.”). 28 58 1 This case involves an incorrect decision to deny benefits, not an 2 incorrect decision to terminate ongoing benefits. 3 Court must “remand to the administrator to apply the terms correctly in 4 the first instance.” Accordingly, the Pannebecker, 542 F.3d at 1221. 5 6 VII. COUNTERCLAIM 7 8 9 In a counterclaim, the Beverly Hills Hotel and Bungalows Employee Benefit Trust seeks injunctive and declaratory relief against Plaintiff 10 and U.S. Bancorp (the trustee of the Special Needs Trust) that the 11 Employee Benefit Trust is entitled to a lien on the funds in the Steve 12 Martinez Special Needs Trust, as well as reimbursement for future funds 13 that will expended by the Employee Benefit Trust if it provides health 14 care to Plaintiff’s son. 15 The Court refrains from deciding the counterclaim. In light of 16 the decision supra regarding the parties’ rights and obligations under 17 the Plan, the counterclaims are not ripe for decision. 18 19 VIII. CONCLUSION 20 21 For the reasons stated, the Court finds that Defendant abused its 22 discretion when denying Plaintiff’s request for benefits. 23 JUDGMENT shall be entered for Plaintiff Ana Martinez against Defendant 24 The Beverly Hills Hotel and Bungalows Employee Benefit Trust Employee 25 Welfare Plan. 26 27 DECLARATORY The Court REMANDS the matter to Defendant to apply the Plan’s terms in accordance with this Order. 28 59 Plaintiff’s claim for benefits 1 shall be deemed renewed as of the date this Order is entered on the 2 docket. 3 regulatory requirements of ERISA. 4 Defendant’s decision on remand is subject to the statutory and The counterclaim brought by Counterclaimant (The Beverly Hills 5 Hotel and Bungalows Employee Benefit Trust Employee Welfare Plan) is 6 DISMISSED WITHOUT PREJUDICE. 7 8 FINAL JUDGMENT 9 10 In accordance with the foregoing Findings of Fact and Conclusions 11 of Law, DECLARATORY JUDGMENT is hereby entered in favor of Plaintiff 12 Ana Martinez. 13 Defendant The Beverly Hills Hotel and Bungalows Employee Benefit Trust 14 Employee Welfare Plan violated Plaintiff Ana Martinez’s statutory 15 rights under ERISA. It is hereby ORDERED, ADJUDGED, and DECREED that 16 17 18 IT IS SO ORDERED. 19 20 21 DATED: March 9, 2010 22 STEPHEN V. WILSON 23 UNITED STATES DISTRICT JUDGE 24 25 26 27 28 60

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.