Doe v. Travelers

• Court: Court of Appeals for the First Circuit
• Decided: January 28, 1999
• Docket: 98-1286
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 98-1286



                            JANE DOE,



                       Plaintiff, Appellee,



                                v.



                   TRAVELERS INSURANCE COMPANY,



                      Defendant, Appellant.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



           [Hon. Robert E. Keeton, U.S. District Judge]


Before



                      Selya, Circuit Judge,

                                

                 Aldrich, Senior Circuit Judge,

                                

                     Boudin, Circuit Judge.


Joan O. Vorster with whom James C. Donnelly, Jr., Charles B.

Straus, III, and Mirick, O'Connell, DeMallie & Lougee, LLP were on

brief for appellant

     Katherine A. Hesse with whom David W. Healey, Doris R.

MacKenzie Ehrens and Murphy, Hesse, Toomey & Lehane were on brief

for appellee.


January 27, 1999


BOUDIN, Circuit Judge.  Travelers Insurance Company

("Travelers") appeals from a judgment against it in favor of Jane

Doe (a pseudonym) for claims she brought in the district court

under the Employee Retirement Income Security Act of 1974

("ERISA"), 29 U.S.C.  1001, et seq.  The events giving rise to

Doe's law suit and the proceedings that ensued can be briefly

summarized as follows.

  In 1995, Jane Doe was the founder, chairperson and chief

technical officer of a high tech firm.  During the prior two years,

she had been getting outpatient psychotherapy for depression.  In

January 1995, she attended a women's retreat where, she later said,

she experienced a rush of repressed memories of childhood sexual

abuse.  Following this experience, Doe was afflicted by an

increased sense of disquiet and depression, had trouble sleeping

and eating, and suffered from repeated sudden floods of images and

memories.

  According to her medical records, Doe engaged in some

self-destructive behavior between the retreat and the end of

February.  Once she wandered off into the snow for several hours at

night.  She overdosed on codeine at one point, had urges to cut

herself, and formed some thoughts of suicide (the clinical phrase

is "suicidal ideation") centering upon codeine overdosing.  Her

depression grew more severe during late February. On March 1, Doe

nearly had an automobile accident when she had a "flashback" while

driving at high speed.

  At the urging of her psychiatrist, Dr. Nicholson

Browning, Doe contacted the Human Resource Institute Hospital on

February 23, 1995, with a view to possible hospitalization.  Doe's

company had an employee benefit health plan that comprised or

included medical coverage under a policy issued by Travelers.  The

Travelers policy included inpatient hospital care for mental health

needs, where justified under the policy, for up to 60 days subject

to a 20 percent co-payment by the beneficiary.  Apparently there

followed some discussion between the hospital and Travelers that

led Doe to believe that Travelers would likely cover her

hospitalization and that the hospital would waive Doe's share.

  On March 1, 1995, Doe asked Travelers to approve her

admission to the hospital, which she entered on March 2.  A three-

page single spaced "admission note," compiled by Dr. Lisa Wolfe,

the psychologist involved in Doe's care, concluded in "reason for

hospitalization": "Deteriorating condition unmanageable outside of

a hospital setting and serious suicide risk."  Doe's treating

psychiatrist, Dr. Nan Herron, also said that inpatient care was

necessary and later supplied hospital notes covering the first

several weeks of March that referred to suicidal gestures and

impulses on Doe's part.

  On March 3, a Travelers' representative acting as

"patient advocate" advised Doe's doctors orally that Travelers

would not approve inpatient treatment.  The internal notes of the

patient advocate indicate as reasons that there had been no

suicidal ideation since Doe's hospitalization (a one-day period)

and that she had been willing to "contract" for her safety with the

hospital--apparently a commitment secured by the hospital from

patients where possible--and that she had been admitted to an

"open" unit subject to checks by hospital staff only every 15

minutes--as opposed to close confinement or more frequent

monitoring.  

     Doe remained in the hospital, paying out of her own

pocket but insisting that Travelers reimburse her.  Doe's doctors

and psychologist wrote to Travelers and supplied more details and

arguments for reimbursement.  Travelers' patient advocate and a

series of other Travelers personnel wrote letters in reply and

consulted with physician advisors and medical reviewers who advised

Travelers based on records as to Doe; the gist of these statements

was that Doe's symptoms and the hospital's willingness to let her

out of the hospital for brief daytime "leaves" showed that

outpatient treatment was a feasible and obviously less costly

alternative approach.  The correspondence continued after Doe

completed her inpatient treatment on or about March 20.

     Ultimately, in May 1995, Travelers agreed to pay for the

first two days of hospital treatment but not the balance.  After

further refusals of Travelers to pay more, Doe filed suit in a

Massachusetts state court against Travelers for breach of contract

and deceptive acts and practices.  Travelers removed the case to

federal district court where it has been treated, without dispute

by the parties to this appeal, as one governed directly by ERISA. 

See Doe v. Travelers Ins. Co., 971 F. Supp. 623, 629 (D. Mass.

1997).  After discovery and a four-day non-jury trial, the district

court decided the case on July 31, 1997, in favor of Doe.  See id.at 639-41.

     The district court concluded that Travelers' handling of

Doe's claim had been flawed by procedural errors and by Travelers'

improper delegation of authority to handle claims to other

entities; that Doe had at least a colorable case for reimbursement;

that reconsideration by Travelers was infeasible because it no

longer retained authority to decide claims; and that therefore Doe

should be reimbursed the amount of her unpaid hospitalization costs

of $23,456.04.  See Travelers, 971 F. Supp. at 641.  The court also

found that Travelers had violated ERISA by failing to supply Doe

with certain mental health guidelines it had used in considering

her claim and imposed $38,000 in penalties. See id. at 640.

     The district court also concluded that it should award

attorney's fees and costs in favor of Doe.  See id. at 641.  In

later proceedings, it fixed the amount at $155,705.92 in fees and

$1,264.70 in costs.  Thereafter, a final judgment, which also

provided for post-judgment interest, was entered covering hospital

reimbursement, penalties, and attorney's fees and costs.  Travelers

now appeals, challenging every portion of the judgment.

     It is common ground that Doe's rights against Travelers

under the policy are governed by ERISA and not by state law.  See

id. at 629.  Under ERISA, a plan beneficiary such as Doe may bring

a civil action "to recover benefits due" under the plan or to

enforce "rights" under the plan.  29 U.S.C.  1132(a)(1)(B). 

Travelers concedes that under 29 U.S.C.  1002(21), it has assumed

a fiduciary responsibility to pay benefits due under the policy. 

See Travelers, 971 F. Supp. at 629.  The first question we face is

whether Doe is entitled to reimbursement under the policy in this

case.

     What is "due" to Doe under the policy is, in the first

instance, defined by the terms of the policy.  Under the policy,

Doe is covered for  hospitalization of the type in question--it is

listed as one of the treatments available--but only if it is

"medically necessary."   The policy provides that Travelers

"determines, in its discretion, if a service or supply is medically

necessary," including consideration of whether "a less intensive"

treatment would accomplish the task.  Later language says that

"[n]o benefits are payable unless the Patient Advocate determines

the services are Medically Necessary."

      Although the "discretion" and "no benefits" language

could be read literally to make Travelers' decision final,

Travelers quite sensibly does not take this extreme position.  It

says only that it is entitled to have its own decision reviewed

deferentially, under an arbitrary and capricious standard, based on

the information it had available when it made its decision.  At

first blush, the standard of review urged by Travelers is just what

the Supreme Court endorsed in Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101, 115 (1989), for ERISA benefit determinations where,

as here, the plan language purports to reserve to the defendant

discretion in administering the provisions in question.

     Firestone did note that where the plan fiduciary

exercising the discretion operates under "a conflict of interest,"

this is a "factor" in determining whether discretion has been

abused.  Id. at 115.  What constitutes a conflict and how the

factor is to be weighed were not explained, and naturally the cases

in the lower courts are now somewhat divided.  Here, of course,

Travelers would pay the claim out of its own assets, a position the

district court viewed as producing a conflict of sorts.  Travelers,

971 F. Supp. at 630.  Travelers says it is a very small claim

payable out of very large assets; but small claims add up.  On the

other hand, Travelers can hardly sell policies if it is too severe

in administering them.

     The district court predicted that this circuit would

adopt a standard for companies in Travelers' position that afforded

the company latitude but gave "more bite" to the arbitrary and

capricious standard, a notion suggested by a Seventh Circuit case. 

Chojnacki v. Georgia-Pacific Corp., 108 F.3d 810, 815 (7th Cir.

1997).  Thereafter, a panel of this court cited the "more bite"

language with approval but then glossed it in terms that would make

it inapplicable here.  Doyle v. Paul Revere Life Ins. Co., 144 F.3d

181, 184 (1st Cir. 1998).  Doyle stressed the benefit of a uniform

test of discretion and concluded that the mere fact that an

individual claim, if paid, would cost the decision maker something

did not show that "the decision was improperly motivated."  Id.

     It seems to us that the requirement that Travelers'

decision be "reasonable" is the basic touchstone in a case of this

kind and that fine gradations in phrasing are as likely to

complicate as to refine the standard.  The essential requirement of

reasonableness has substantial bite itself where, as here, we are

concerned with a specific treatment decision based on medical

criteria and not some broad issue of public policy.  Any reviewing

court is going to be aware that in the large, payment of claims

costs Travelers money.  At the same time, the policy amply warns

beneficiaries that Travelers retains reasonable discretion based on

medical considerations.

     Consistent with Doyle, 144 F.3d at 184, we do not think

that Travelers' general interest in conserving its resources is the

kind of conflict that warrants de novo review.  Nor is it necessary

to consider Doe's position, reinforced by some comments of the

district judge, that de novo review is appropriate in this case--

apart from any alleged conflict of interest--because of other

procedural errors by Travelers or improper delegations of authority

by it to others.  We by-pass these latter concerns by assuming that

review is merely for reasonableness and by concluding that even

under this favorable standard Travelers' denial of benefits, tested

against the relevant record, was unreasonable in this case. 

     This brings us to the question of what "record" should be

used in judging the reasonableness of Travelers' decision.  It is

not clear that any single answer covers all of the variations in

ERISA cases; the "record" may depend on what has been decided, by

whom, based on what kind of information, and also on the standard

of review and the relief sought.  Here, we will assume arguendo, in

Travelers' favor, that Travelers could sustain its denial if it

acted reasonably based on the information in its possession

available from Doe and from other sources, and that new previously

unavailable medical evidence from Doe offered for the first time at

trial would not impeach the original decision.

     Finding out just what information Travelers had and why

it acted as it did depends upon the medical notes provided to it,

the exchange of correspondence, and the recollections of oral

conversations; this in turn can require discovery and even fact

finding by the district court.  Here, however, the parties have

stipulated to, or otherwise left undisputed, facts or documents

sufficient to resolve the case.  Doe continued to pursue her case

administratively well into the summer, and Travelers gives us no

reason to ignore information Doe offered to Travelers before her

last appeal was rejected in August 1995.

     The district court opinion describes, chronologically,

much of the back and forth in March 1995 and thereafter, and quotes

at length from the medical log of Travelers' patient advocate. 

Instead of repeating the story in the same detail and manner, we

extract the essentials on each side and consider them, in

particular, against the more general criteria of the mental health

"guidelines" on which Travelers itself said it relied in making its

decision.

     On Doe's side of the scale, it is evident that Doe was

significantly anxious and depressed before entering the hospital. 

This claim of mental disturbance is plausibly explained by Doe's

prior history, and was confirmed by her outside psychiatrist and by

the medical staff at the hospital after she entered.  Her records

indicate a downward trend in her condition in late February 1995. 

Doe's own doctor urged her to seek hospital care.  Nonetheless, if

this evidence stood alone, Travelers might have had reason to

insist that Doe first exhaust the possibility of outpatient

treatment.

     The gravamen of Doe's claim is the danger of suicide--

that she had engaged in some self-destructive behavior and had both

before entering the hospital and afterwards, some thoughts about

self-mutilation and suicide.  Here, we deal with matters of degree:

she had not leapt from a balcony or tried to shoot herself, and

there is no clear evidence that she had the kind of very detailed

and consistent plans for suicide that would cause the most severe

level of alarm.  At the same time, her documented impulsiveness

certainly created a danger, even if more qualified than a well-

developed plan, that she might harm herself in a wave of dispair or

distraction.

     It is much harder to calibrate such risks than to

diagnose conditions that can be reduced to blood samples, EKG

print-outs, or biopsies--and that, in turn, requires that we give

special weight to the judgment of trained experts who saw and

treated Doe.  The opinions of her own doctor, the hospital doctor,

and the hospital psychologist were unanimous that Doe did have

suicidal thoughts, that they created a discernible risk that she

would act on them, and that a period of inpatient care was

necessary.  The hospital notes for most of the period of Doe's

hospitalization continue to reflect concerns about suicide or self

harm.  A significant risk of death is, of course, the ultimate

medical danger.

     On Travelers' side of the balance, it appears that the

patient advocate did confer with one or more of Travelers' own

consulting psychiatrists, who concurred in the advocate's denial of

approval.  However, Travelers' doctors did not examine Doe, their

reasoning is not known in detail, and Travelers eventually conceded

that cause existed to justify two days of inpatient evaluation, an

evaluation that led the hospital to continue to press for inpatient

care.  The only objective evidence cited by Travelers is that Doe's

confinement within the hospital was less severe than it might have

been and that she was allowed out for portions of some days "on

leave"; but these choices were necessarily based on judgments as to

Doe's day-to-day condition.

      The written mental health guidelines that Travelers

purported to rely upon come very close to embracing the facts of

this case.  Two separately sufficient conditions for acute

inpatient care are: "recent suicide attempt and/or serious gesture

with specific plan--and means indicating current suicidal risk" and

"[c]urrent suicidal ideation and plan with a history of previous

suicide attempts, serious gestures . . . ."  Either of this pair of

conditions constitutes "severe" impairment and justifies inpatient

hospitalization.  The guidelines go on to make clear that even

"moderately severe" or "moderate" impairment (e.g., "history of

[suicidal] gestures and/or attempts with or without a specific

plan") can justify inpatient treatment depending on the

circumstances.

     Given the stakes, the objective evidence of Doe's

"gestures," her plausible persistent claims of suicidal thoughts

(accepted as authentic by her doctors), her undoubtedly fragile

mental condition, the unanimity of expert opinion on the part of

those who examined and treated Doe that inpatient care was

required, and Travelers' own guidelines, we think that the denial

of full benefits was unreasonable.  This conclusion eliminates any

concern about procedural flaws,  delegations, remands or

abandonment of authority to revisit the case.  Travelers is simply

responsible under the policy for the treatment as "medically

necessary."  

      By contrast, we do not agree that Travelers--by failing

to tender to Doe a copy of the mental health guidelines--violated

ERISA's requirement that any plan administrator must furnish, on

request and within 30 days, "any information which such

administrator is required by [ERISA] to furnish to a participant or

beneficiary . . . ."  29 U.S.C.  1132(c).  The district court

said that Doe had requested the guidelines by letter of June 21,

1995, that the guidelines fell within the category of information

that a plan administrator is required by statute to furnish on

request within 30 days, and that Travelers had not furnished the

guidelines to Doe until discovery in this case on August 6, 1996. 

See Travelers, 971 F. Supp. at 639-40.  The court therefore imposed

the section's discretionary penalty of $100 per day for failure to

comply starting 30 days after July 22, 1995, or $38,000.  See id.at 640-41.

     As background to the legal issue, some additional facts

are pertinent.  The first letter from Travelers to Doe, dated March

7, 1995, said inter alia that the initial denial of inpatient

treatment was made "[p]ursuant to the Travelers' Medical Necessity

Guidelines" because the patient's "clinical situation" showed that

treatment could be rendered in "a less intrusive or more

appropriate alternative setting."  Later, more detailed

correspondence from Travelers dealt with clinical information

concerning Doe but did not refer again to any specific guidelines.

     In the course of discovery, Travelers was forced to

produce the document titled "Guidelines for Level of Care Decisions

in Mental Health Care," see note 5, above, saying that this was the

"Travelers' Medical Necessity Guidelines" to which its original

March 7 letter referred.  The document would likely have been quite

helpful to Doe and her doctors in arguing for inpatient treatment,

but the document itself cautions that treatment decisions depend

upon "many factors, only some of which can be generalized in the

form presented here."

     This brings us back to the statute and regulations. 

Section 1024 requires that the administrator furnish each

beneficiary, at the outset and later upon request, the summary plan

description and, upon request, "the trust agreement, contract or

other instruments under which the plan is established or operated." 

29 U.S.C.  1024(b)(2).  Elsewhere, the statute says that "the plan

description and summary plan description" shall include inter alia"the plan's requirements respecting eligibility for participation

and benefits" and "circumstances which may result in

disqualification, ineligibility, or denial or loss of benefits." 

29 U.S.C.  1022(b).  See also 29 C.F.R.  2520.102-3(l); 29 C.F.R.

 2520.102-3(j)(2).

     We do not think that the mental health guidelines are one

of the "other instruments," a phrase that in context refers to the

formal legal documents that underpin the plan.  And while the

statute's "requirements" and "circumstances" language might be

stretched to cover the document, this language is more reasonably

directed to provisions such as those contained in the policy itself

that describe the plan and legally obligate Travelers--with respect

to the medical conditions covered, these provisions include the

general test of medical necessity, the claims procedure, and like

information that a beneficiary would normally consult in

determining what protection was afforded by a plan.  See Faircloth,

91 F.3d at 653-54; Hughes, 72 F.3d at 690-91.

     The mental health guidelines may have been used by

Travelers, but Travelers was not bound to use them, nor did

patients have any legal rights under them.  Travelers could consult

or disregard this or any other set of mental health guidelines,

medical textbooks, articles, or advisors in making its judgment. 

To hold that Travelers' choices, from this broad and changeable

menu, become part of the plan stretches the statutory language too

far.  The courts have understandably been cautious in reading too

broadly disclosure requirements whose violation can trigger a $100

per day penalty, conceivably available to many plan participants

and beneficiaries.

     The district court also relied upon a provision, not of

ERISA but of the regulations under it, relating to claim

procedures.  See Travelers, 971 F. Supp. at 632.  This regulation

requires every plan to have a procedure for appealing a denied

claim to a fiduciary or its delegate and "under which a full and

fair review" may be obtained, including the opportunity to "review

pertinent documents."  29 C.F.R.  2560.503-1(g).  The district

court ruled that Doe's June 21, 1995, letter--asking for "a copy of

the medical reviewers['] report" --was a "request" for the mental

health guidelines and triggered Travelers' duty to produce the

guidelines as a "pertinent" document needed for "full and fair

review."

     We pass by the question whether ERISA's $100 penalty

provision applies to material required solely because of an ERISA

regulation (section 1132(c)(1) speaks of information required "by"

the statute).  Even if the penalty provision did apply in

principle--a debatable issue--a request for "the medical

reviewers['] report" is not a request for the guidelines.  Nor do

we think that Doe's general request for an explanation required the

production of the guidelines as an essential part of Travelers'

obligation to supply an extension for its decision under 29 C.F.R.

 2560.503-1(f).

     This does not mean that the failure to provide "a full

and fair review" required by the regulations is without

consequences or that no "pertinent document" need ever be produced

for such a review without a specific reference.  The district court

thought the denial of Doe's claim flawed by just such missteps in

this case--an issue we have found it unnecessary to reach.  SeeTravelers, 971 F. Supp. at 632-34.  Similarly, the regulations can

be enforced by the Secretary.  See 29 U.S.C.  1132(a)(2), (a)(4-

6).  But the $100 per day penalty is limited to those cases where

the conduct falls squarely within the terms of section 1132(c). 

See Verkuilen, 122 F.3d at 412; Anderson, 47 F.3d at 248; Groves,

803 F.2d at 117-19. 

     Finally, we turn to Travelers' appeal from the award of

attorney's fees against it.  Under ERISA, the district court  "in

its discretion may allow a reasonable attorney's fee and costs" to

either party (the award is mandatory only in a narrow and here

irrelevant class of cases).  29 U.S.C. 1132(g)(1); see also Lodgev. Shell Oil Co., 747 F.2d 16, 20-21 (1st Cir. 1984).   Naturally,

such awards are normally for the prevailing party, if at all, and

are based on rather general considerations such as fault, ability

to pay, deterrence, and the like.  See Gray v. New England Tel. and

Tel. Co., 792 F.2d 251, 257-58 (1st Cir. 1986).  In this case the

district court wrote a thoughtful separate opinion explaining its

reasons for awarding fees in favor of Doe.

     Nevertheless, we must remand the award of attorney's fees

because the amount allowed rested in part on the size of the award

to Doe, and we have now struck the penalty component of the award. 

If anything in our opinion prompts the district court to reconsider

whether any award should be made, it is free to do so.  But we do

not suggest that the district court needs to conduct any further

proceedings before deciding these issues.

     The award of hospitalization benefits including pre-and

post-judgment interest is affirmed; the award of penalties for

nondisclosure is reversed; and the award of attorney's fees and

costs is vacated and remanded for further proceedings consistent

with this opinion.    Each party shall bear its own costs on this

appeal, and Doe's request for attorney's fees on this appeal is

denied.

     It is so ordered.