Fred Brown ("Brown") was denied hospitalization benefits under a group health plan because he had not obtained a precertification of the hospital admission. The district court held that the decision to deny benefits under this ERISA plan was not arbitrary and capricious and entered summary judgment for defendants. Brown argues on appeal that there were material issues of fact and that the district court failed to apply the governing law. We reverse and remand for further proceedings.
Brown, an employee of Truck Rentals of Alabama, Inc., was a participant in Truck Rentals' group health care plan established pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. Blue Cross and Blue Shield of Alabama, Inc. ("Blue Cross"), provides insurance coverage under the plan for a monthly premium.
The plan automatically covers the cost of in-patient hospital care arising from a medical emergency but provides coverage in other cases only when Blue Cross has "approved and precertified the admission and stay" before the participant's admission to the hospital. Brown was in the hospital twice for the same condition. The first visit was covered as a medical emergency; the second was not.
Brown was admitted to St. Charles General Hospital in New Orleans, Louisiana, because of a sinus condition. The first hospitalization lasted from September 21 through September 26, 1987. The second began on September 29 and ended on October 6, 1987. During the second stay, Brown underwent surgery for his sinus condition. The trial court found that no preadmission certification was obtained for either period of hospitalization. Without a preadmission certification, coverage for hospital expenses depends upon whether a hospitalization was compelled by a "medical emergency."
When claims were filed for plan benefits, Blue Cross initially denied all coverage. The company later extended coverage to the first hospitalization as a medical emergency, but refused coverage for the second. Brown filed suit to compel payment for the second period of hospitalization. He urged two theories favoring coverage, one in which the second period is treated as a continuation of the first and another in which the second period is treated as an independent emergency situation.
The district court reviewed the denial of benefits under an arbitrary and capricious standard, consistent with the law in this Circuit at the time of the decision. See, e.g., Hoover v. Blue Cross & Blue Shield of Ala., 855 F.2d 1538, 1541 (11th Cir.1988); Griffis v. Delta Family-Care Disability & Survivorship Plan, 723 F.2d 822, 825 (11th Cir.) (adopting district court opinion), cert. denied, 467 U.S. 1242, 104 S.Ct. 3514, 82 L.Ed.2d 823 (1984). Brown asserts that the Supreme Court's recent decision of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. ___, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), decided after this case was before the district court, requires a de novo standard of review. That case, to the contrary, demonstrates that an arbitrary and capricious standard continues to be applicable here.
Although Firestone does not alter in form the standard applied to review of the fiduciary's decision, the substance of review was subtly altered by the opinion. We examine herein the impact of this change. Our application of the Firestone opinion yields the conclusion that the decision of the district court must be reversed and remanded.
SCOPE OF REVIEW
Our review of the district court's grant of summary judgment begins with a brief statement of its scope. Judge Johnson has
This appeal from grant of summary judgment is subject to plenary review. See, e.g., Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir.1989). We therefore apply the same legal standards that bound the district court. Id. The standard governing the grant of summary judgment is well-known and well expressed elsewhere, see id. at 933-34, so it will not be repeated here.
In our review of the substantive issue whether Blue Cross was arbitrary and capricious in its denial of Brown's claim for benefits, we "determine whether there was a reasonable basis for the decision [to deny benefits], based on the facts as known to the [fiduciary] at the time the decision was made." Jett, 890 F.2d at 1139. The concept of "reasonable basis," however, must be modified consistent with the following discussion of the application of the arbitrary and capricious standard in the present context.
STANDARD OF REVIEW FOR FIDUCIARY DECISIONS
In Firestone, the Court established de novo judicial review of an ERISA benefits denial decision "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." 109 S.Ct. at 956. Appellant does not argue that this principle would not apply to Blue Cross in this case. The Group Hospital and Major Medical Contract between Baggett Transportation Company and Blue Cross, which we take to be the ERISA benefit plan document
Contract Plan, § IX(K). Notably, the division of ERISA duties between Baggett Transportation Company and Blue Cross provides:
Id., § XIII(D)(1). Thus, Blue Cross exercises its discretion as a fiduciary, not as plan administrator.
Before Firestone, several circuits undertook to vary the deference accorded trustee or fiduciary decisions, within the framework of the arbitrary and capricious standard, in reaction to the presence or absence of conflicting interests on the part of the decisionmaker. See, e.g., Sage v. Automation, Inc. Pension Plan & Trust, 845 F.2d 885, 895 (10th Cir.1988); Van Boxel v. Journal Co. Employees' Pension Trust, 836 F.2d 1048, 1052-53 (7th Cir.1987); Holland v. Burlington Indus., Inc., 772 F.2d 1140, 1149 (4th Cir.1985), sum. aff'd, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 559 (1986); Gilbert v. Burlington Indus., Inc., 765 F.2d 320, 328-29 (2d Cir.1985), sum. aff'd, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 558 (1986); Jung v. FMC Corp., 755 F.2d 708, 711-12 (9th Cir.1985); Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir.1982); Maggard v. O'Connell, 671 F.2d 568, 571 (D.C.Cir.1982); see also Gesina v. General Elec. Co., 162 Ariz. 39, 780 P.2d 1380, 1383-85 (App.) (adopting variable deference in original opinion decided before Firestone and adhering thereto in post-Firestone opinion on reconsideration), rev. denied, 162 Ariz. 39, 780 P.2d 1380 (1989). The Court's opinion in Firestone serves to underscore the perceptiveness of these cases.
Our task is to develop a coherent method for integrating factors such as self-interest into the legal standard for reviewing benefits determinations. This task reaches the height of difficulty in a case such as the one before us, where an insurance company serves as the decisionmaking fiduciary for benefits that are paid out of the insurance company's assets. Several features distinguish insurance policy plans from other forms of ERISA plans.
The most familiar distinction lies in the application of certain state laws to ERISA plans. Although other forms of ERISA plans may offer the same kinds of health or other benefits that insurance policy plans offer, only insurance policy plans are subject to "any law of any State which regulates insurance." See 29 U.S.C. § 1144(b)(2)(A) (savings clause); see also id. § 1144(b)(2)(B) (so-called deemer clause, which exempts employee welfare plans from insurance regulation). Congress intended a distinction between insured and uninsured plans such that the former are subject to state regulations, for example, mandated-benefit laws, that have the effect of transferring or spreading a policyholder's risk, that are an integral part of the policy relationship between the insurer and the insured, and that are limited to entities within the insurance industry. See Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 738-47, 105 S.Ct. 2380, 2388-93, 85 L.Ed.2d 728 (1985) (applying mandated-benefit law to group health insurance ERISA plan); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (refusing to apply general contract law causes of action against group insurance policy).
Another, more important distinction derives from the trust aspect of ERISA plans. The trust nature of employee benefit plans is fundamental to ERISA. The statute provides, with enumerated exceptions, "all assets of an employee benefit plan shall be held in trust by one or more trustees." 29 U.S.C. § 1103(a). Insurance policy plans fall within the exceptions. The policy is an asset of the plan, but the insurer's assets are not thereby included in the plan. Id. § 1101(b)(2). Moreover, this asset of the plan, the insurance policy, is not an asset held in trust for the beneficiaries of the plan because the trust requirements of section 1103(a) do not apply "to assets of a plan which consist of insurance contracts or policies issued by an insurance company qualified to do business in a State." Id. § 1103(b)(1). Inasmuch as "[t]he basis for the deferential standard of review in the first place was the trust nature of most ERISA plans," Moon v. American Home Assurance Co., 888 F.2d 86, 89 (11th Cir.1989), the most important reason for deferential review is lacking.
A final distinction involves the inherent conflict between the roles assumed by an insurance company that administers claims under a policy it issued. When vested with discretion to interpret the insurance policy qua ERISA benefits plan, the insurance company qua fiduciary is measured by a standard of loyalty, see 29 U.S.C. § 1104(a)(1)(A), and a standard of care, see id. § 1104(a)(1)(B), in the exercise of its duties, see Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570-72, 105 S.Ct. 2833, 2840-41, 86 L.Ed.2d 447 (1985); Local Union 2134, U.M.W. of Am. v. Powhatan Fuel, Inc., 828 F.2d 710, 713 (11th Cir.1987). Because an insurance company pays out to beneficiaries from its own assets rather than the assets of a trust, its fiduciary role lies in perpetual conflict with its profit-making role as a business. That is, when an insurance company serves as ERISA fiduciary to a plan composed solely of a policy or contract issued by that company, it is exercising discretion over a situation for which it incurs "direct, immediate expense as a result of benefit determinations favorable to [p]lan participants." De Nobel v. Vitro Corp., 885 F.2d 1180, 1191 (4th Cir.1989) (explaining threshold for economic conflict of interest by fiduciary); see also Slover v. Boral Henderson Clay
The inherent conflict between the fiduciary role and the profit-making objective of an insurance company makes a highly deferential standard of review inappropriate. (The common-law basis for this proposition is developed infra.) Since the Firestone decision we have not considered any comparable situation. Four cases have been decided in this Circuit thus far. We briefly review each.
In Guy v. Southeastern Iron Workers' Welfare Fund, 877 F.2d 37 (11th Cir.1989), we affirmed the district court's conclusion that the trustees of a self-funded employee benefit plan acted in an arbitrary and capricious manner by refusing to pay a beneficiary's medical bills. We did not reach any issue related to conflicting interests because the trustees' decision did not survive the most deferential standard of review. See id. at 39.
In Moon v. American Home Assurance Co., 888 F.2d 86 (11th Cir.1989), we applied the de novo standard of review to the denial of benefits by an insurance company on a death benefits policy. An individual, not the insurance company, was the administrator of the plan and no discretionary authority was vested in the company (thus precluding it from gaining fiduciary status). Id. at 88. We naturally had no occasion to examine the arbitrary and capricious standard.
Similarly, in Baker v. Big Star Div. of the Grand Union Co., 893 F.2d 288 (11th Cir.1989) (as amended), we remanded a case for application of the de novo standard to the denial of a claim for disability benefits by an insurance company that acted as claims administrator for a self-insured plan. We absolved the insurance company of either ERISA plan administrator or fiduciary status based on its purely ministerial role as an administrative servicing agent for claims processing. Id. at 290. Because the insurance company did not pay the benefits from its coffers and did not exercise discretion under the employee benefit plan, Baker does not shed light on the issues that presently concern us.
Finally, in Jett v. Blue Cross & Blue Shield of Alabama, 890 F.2d 1137 (11th Cir.1989), we applied the arbitrary and capricious standard to the benefits determination made by an insurance company pursuant to a clause conferring discretionary authority in nearly the same terms as the ERISA plan in this case. The crucial difference in Jett, however, is the lack of any conflicting interest on the part of the insurance company. The plan was self-insured, with the insurance company acting as administrator and receiving full reimbursement from the plan sponsor for covered medical claims. Id. at 1138. The insurance company would not suffer any direct, immediate expense as a result of benefit determinations favorable to plan participants. Consequently, the insurance company qua plan administrator deserved and was accorded the highest deference in review of its claims denial decision. Cf. Bali v. Blue Cross & Blue Shield Ass'n, 873 F.2d 1043, 1047 n. 5 (7th Cir.1989) (no conflict of interest implicated where third party made determinations on benefits).
In summary, we face for the first time (since Firestone
In saying that Blue Cross' benefits determinations are subject to review by the arbitrary and capricious standard, we recognize that the concept of arbitrary and capricious
The disinterested, impartial decisionmaker deserves the greatest deference. "Where ... the claimant does not argue or is unable to show that the trustees had a significant conflict of interest, we reverse the denial of benefits only if the denial is completely unreasonable." Van Boxel, 836 F.2d at 1053. Compare De Nobel, 885 F.2d at 1191-92 (no evidence to suggest decision was tainted by conflict of interest and explanation of denial was reasonable) with Guy, 877 F.2d at 39-40 (conflict of interest issue not raised, but trustees acted unreasonably by denying benefits, without affording claimant notice or right of appeal, on basis of uncertain equitable right of recovery through subrogation). Correspondingly, "[w]hen the members of a tribunal — for example, the trustees of a pension fund — have a serious conflict of interest, the proper deference to give may be slight, even zero; the decision if wrong may be unreasonable." Van Boxel, 836 F.2d at 1052.
By describing this range we have drawn merely the outer boundaries of our inquiry. We now must fix more precisely the method for evaluating the abuse of discretion. The Firestone Court has directed us to consult common law principles of trusts
Comment d to section 187 of the Restatement (Second) of Trusts lists six factors to consult to determine the question whether a trustee is guilty of abuse of discretion in exercising or failing to exercise a power.
The sixth factor is the most significant in this case. (We have set forth supra the analysis of the conflict of interest present in this case.) A finding of a conflicting interest has a tremendous impact on the evaluation of the fiduciary's actions.
Fulton Nat'l Bank v. Tate, 363 F.2d 562, 571-72 (5th Cir.1966) (emphasis in original). In other words, one reason for limiting the deference when the fiduciary suffers a conflict of interest is to discourage arrangements where a conflict arises.
The matter of conflicting interests touches on the fifth factor, improper motive, as well.
Restatement (Second) of Trusts § 187, Comment g; accord 3 A. Scott & W. Fratcher, The Law of Trusts § 187.5, at 47 (4th ed. 1988) [hereinafter "Scott on Trusts"]. The rationale for this approach is clear. A conflicted fiduciary may favor, consciously or unconsciously, its interests over the interests of the plan beneficiaries. See Tate, 363 F.2d at 571. The judicial hesitation to inquire into the fiduciary's motives will leave the beneficiaries unprotected unless the existence of a substantial conflicting interest shifts the burden to the fiduciary to demonstrate that its decision is not infected with self-interest. See id. at
Improper motive encompasses something different from dishonesty or bad faith. See 3 Scott on Trusts § 187.5, at 46-47. Even the broadest delegation of discretion to a trustee or fiduciary is bounded by the limitation that the fiduciary cannot act from a motive other than the accomplishment of the purposes of the trust. See, e.g., Funk v. Commissioner, 185 F.2d 127, 130 (3d Cir.1950); McDonald v. McDonald, 92 Ala. 537, 9 So. 195, 196-97 (1890); In re Estate of Smith, 117 Cal.App.3d 511, 172 Cal.Rptr. 788, 794 (1981); Mesler v. Holly, 318 So.2d 530, 533 (Fla. Dist.Ct.App.1975); Lyter v. Vestal, 355 Mo. 457, 196 S.W.2d 769, 773 (1946); In re Alpert, 129 A.D.2d 444, 514 N.Y.S.2d 16, 17, appeal denied, 70 N.Y.2d 603, 518 N.Y.S.2d 1026, 512 N.E.2d 552 (1987); In re Bruches, 67 A.D.2d 456, 415 N.Y.S.2d 664, 668 (1979). For example, where a trustee appears to be motivated by a desire to terminate the trust, the motive is improper and the trustee's discretionary determinations are scrutinized closely. See Colket v. St. Louis Union Trust Co., 52 F.2d 390, 395-96 (8th Cir.1931), cert. denied, 285 U.S. 543, 52 S.Ct. 393, 76 L.Ed. 935 (1932).
In accordance with the foregoing common law principles, we hold that when a plan beneficiary demonstrates a substantial conflict of interest on the part of the fiduciary responsible for benefits determinations, the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted by self-interest. That is, a wrong but apparently reasonable interpretation
We have engaged in burden shifting of this type for similar reasons in ERISA suits. In Fine v. Semet, 699 F.2d 1091 (11th Cir.1983), the plan committed benefits determinations to the sole discretion of the trustees. We found that "after [the beneficiary] met his initial burden of offering evidence of facially inconsistent treatment, the burden shifted to the trustees to show why they acted as they did." Id. at 1095. We focused on the articulated reasons given by the trustees and, given the absence of any argument or indicia of conflicting interests or improper motives
In Deak v. Masters, Mates & Pilots Pension Plan, 821 F.2d 572 (11th Cir.1987), cert. denied, 484 U.S. 1005, 108 S.Ct. 698, 98 L.Ed.2d 650 (1988), we expressly reconciled this kind of burden shifting with the arbitrary and capricious standard in the context of improperly motivated trustees. The district court had found that the trustees of the plan amended it for the primary benefit of the sponsoring union and not for the plan beneficiaries. Id. at 576. On the heels of this finding, the district court rejected other apparently reasonable justifications for the plan amendment because they "`[did] not withstand the careful scrutiny with which they must be analyzed.'" Id. at 577 (quoting district court slip opinion). On appeal we found no inconsistency between the terminology of the district court and the traditional deference involved in the application of the arbitrary and capricious standard. Id. Indeed, we went further and laid the burden at the feet of conflicted fiduciaries to demonstrate their loyalty to the plan. We cautioned,
Id. at 581.
The burden of demonstrating the reasons for a challenged plan interpretation will, by and large, draw a distinction between plans that are truly trusts and plans that are based solely on contracts or policies for insurance. Decisions on behalf of a plan in the form of a trust lend themselves less readily to the accusation of conflicting interests and are more easily justified.
De Nobel, 885 F.2d at 1191 (emphasis in original). The Fine case illustrates this principle. Decisions made by the issuing company on behalf of a plan based on a contract of insurance, by contrast, inherently implicate the hobgoblin of self-interest. Adverse benefits determinations save considerable sums that are returned to the fiduciary's corporate coffers. The presumption that the fiduciary is acting for the future stability of the fund cannot be entertained.
Of course, the facts may bear out an insurance company's assertion that its interpretation of its policy is calculated to maximize the benefits available to plan participants and beneficiaries at a cost that the plan sponsor can afford (or will pay). Cf. Griffis, 723 F.2d at 825 ("Attempts to prevent unanticipated costs that may limit the resources of an employee benefits plan are among the proper concerns of a plan's administrator."). If this is a reasonable proposition, it would satisfy the fiduciary's burden to purge the taint of self-interest. The focus moves then to the familiar ways to test the fiduciary's decision against the arbitrary and capricious standard:
We emphasize the central theme of our exposition: well-established common-law principles of trusts teach that a fiduciary operating under a conflict of interest may be entitled to review by the arbitrary and capricious standard for its discretionary decisions as provided in the ERISA plan documents, but the degree of deference actually exercised in application of the standard will be significantly diminished. A court should not exercise de novo review, but the area of discretion to which deference is paid must be confined narrowly to decisions for which a conflicted fiduciary can demonstrate that it is operating exclusively in the interests of the plan participants and beneficiaries. Even a conflicted fiduciary should receive deference when it demonstrates that it is exercising discretion among choices which reasonably may be considered to be in the interests of the participants and beneficiaries. The fiduciary, however, should bear the burden of dispelling the notion that its conflict of interest has tainted its judgment. If the fiduciary carries this burden, the party challenging its action may still succeed if the action is arbitrary and capricious by other measures. This second level of evaluation is assisted somewhat by the narrowing of the justifications which the fiduciary may properly assert in defense of its actions.
We turn to the application of the principles for review of Blue Cross' denial of Brown's claim for medical benefits. The
We cannot affirm this analysis, however, because the conflict of interest suffered by Blue Cross in this case demands closer scrutiny. Consistent with our test for the decisions of a fiduciary suffering from a conflict of interest we would require at this stage a demonstration that Blue Cross adopted its plan interpretations exclusively for the benefit of the plan participants and beneficiaries. The posture of the case does not permit our progress to the next stage. In the present case, then, we look ahead to see if Brown could prevail, should Blue Cross fail on remand to justify its actions. We conduct this inquiry to ascertain whether an alternative basis for affirming the district court is present. Our review of the record on appeal suggests that Brown may prevail if the arbitrary and capricious standard is applied with consideration for Blue Cross' conflict of interest. We conclude remand is necessary to resolve this case.
Our analysis begins with two observations regarding the circumstances of Blue Cross' final benefit denial determination. First, as we noted at the outset, Blue Cross initially denied coverage for both periods of hospitalization. Brown obtained payment of the first period only after pursuing review of that denial. This change in position highlights Blue Cross' conflict of interest and calls into question its motives in benefits determinations. The reversal of its denial of the claim for the first period of hospitalization was based on nothing more than the medical records from that time. Those records should have been part of a good faith determination at the outset. That Blue Cross would reach opposing conclusions on the basis of the same evidence seriously challenges the assumptions upon which deference is accorded to Blue Cross' interpretation of the plan. Cf. Gunderson v. W.R. Grace & Co. Long Term Disability Income Plan, 874 F.2d 496, 500 (8th Cir. 1989) (no deference due to fiduciary's decision to deny benefits under second category of total disability where fiduciary previously found disability under other category based on same evidence and identical definition).
We further observe that Blue Cross does not contest that the surgery performed on Brown was medically necessary and that it would have been covered if preadmission certification had been obtained. Blue Cross, then, has interpreted the plan to work a forfeiture of benefits by Brown. As a general principle, employee benefit plans should not be interpreted in such a way as to produce a forfeiture. See Helms v. Monsanto Co., 728 F.2d 1416, 1420 (11th Cir.1984) ("Congress wanted to assure those who participate in the plans actually receive the benefits they are entitled to and do not lose these as a result of unduly restrictive provisions or lack of sufficient funds."); Bonar v. Barnett Bank, 488 F.Supp. 365, 369 (M.D.Fla.1980) (employer unilaterally establishes plan to encourage continued employment through promise of benefits, so terms should be construed in
In light of these observations, we test Blue Cross' decision by the arbitrary and capricious standard as appropriate in an instance for which conflicting interests are involved. Consistent with the methodology recommended by Denton v. First National Bank of Waco, 765 F.2d 1295, 1304 (5th Cir.1985), our first step in the application of arbitrary and capricious standard is determining the legally correct interpretation of the disputed plan provision. That is, we must determine if Brown has proposed a sound interpretation of the plan, one that can rival the fiduciary's interpretation. Thereafter we evaluate whether the fiduciary was arbitrary and capricious in adopting a different interpretation. Id.
Brown stands by two theories in support of his claim for benefits. The first theory posits that the second period of hospitalization is a continuation of the first. The district court concluded, as quoted above, that some evidence supported this theory. We agree. One indicator is Blue Cross' initial decision to lump the two periods together. Another reason to treat the periods of hospitalization together is the treating physician's opinion that the two periods were a common admission. Materials submitted by Brown in opposition to the summary judgment motion suggest that he persuaded his doctors to allow him to go home for a few days in order to reduce his medical bills and to allow him to tend to matters at home.
The plan does not purport to define what constitutes a single admission for the purpose of an emergency.
Moreover, the discrete division of the two admissions gives rise to inconsistencies with other provisions of the plan. For instance, the plan limits the number of days for which major medical coverage is available during a single confinement to a hospital. See Contract Plan, § V(A)(1). It states, "Successive admissions to a hospital or hospitals shall be deemed to result in a `single confinement' if discharge from and readmission to a hospital or hospitals occur within a 90 day period." Id. Blue Cross argues that this language is expressly limited to the definition for a confinement, not an admission. The distinction is illusory. We look to provisions such as Section V(A)(1) not to define conclusively other provisions. Rather, we seek objective guidance by which to measure the exercise of Blue Cross' discretion. The ninety-day standard indicates recognition of the continuing nature of many afflictions. Blue Cross may be able to explain why it is justified in treating Brown's readmission only three days after discharge differently from the conclusive presumption imposed in the plan for the limitation of benefits payable, but the need for that explanation bars us from affirming the grant of summary judgment.
The demand for preadmission certification for a second admission, when the second admission follows so quickly on the heels of a discharge from the hospital, also raises questions relative to the procedures
Brown's second theory describes his second admission to the hospital as an independent emergency. From a purely medical perspective we find no fault in Blue Cross' rejection of this theory. Brown's doctor wrote a letter setting forth symptoms indicative of an emergency. Blue Cross' expert compared the description in the letter with the medical records prepared at the time of Brown's admission.
From a plan interpretation standpoint, however, we would hold Blue Cross to task for adopting a construction that places a beneficiary in an untenable position. Assuming Blue Cross is correct in treating the second admission as distinct, then the beneficiary must seek preadmission certification. Those procedures, however, do not lend themselves to accomplishment in the few days prior to readmission. Blue Cross, then, must expect the beneficiary to dispute his doctor's judgment, following a five-day hospitalization for an emergency, that surgery should take place so soon. Instead, the beneficiary is expected to seek a delay until preadmission certification is obtained. Such a rule seems dangerous if not wholly absurd. Perhaps Blue Cross can explain its position to the district court; its opportunity is presented on remand.
The district court correctly noted that some evidence supports Brown's arguments favoring coverage. This evidence must be evaluated within the framework of the arbitrary and capricious standard, as it applies when the circumstances of the fiduciary's discretionary action invoke well-established common-law principles suggesting the potential abuse of discretion in the administration of a trust. In accordance with our foregoing analysis, we REVERSE the grant of summary judgment by the district court and REMAND for proceedings not inconsistent with this opinion.
In a district court opinion which we affirmed pursuant to 11th Cir.R. 36-1 after Firestone was decided, three circumstances present here entered into the district court's determination that the fiduciary was arbitrary and capricious in denying benefits. McKinnon v. Blue Cross-Blue Shield of Ala., 691 F.Supp. 1314, 1319-22 (N.D. Ala.1988), aff'd, 874 F.2d 820 (11th Cir.1989) (Table). First, the claims evaluator had a direct stake in the profitability of one hospital, see id. at 1316, and his denial of the claim rested in part on the ability of that hospital to render services which the beneficiary sought elsewhere. The district court expressed severe reservation over this conflict of interest. See id. at 1318-21. Second, Blue Cross initially granted, then denied the claim. See id. at 1317. This reversal of position factored into the district court's evaluation of the evidence concerning the reasonableness of the respective interpretations. See id. at 1321. Last, the parties disputed the existence of an emergency as defined in the plan. See id. at 1318-19. The district court held that the concept of emergency had to conform to the unique facts of the case, which included a bungled diagnosis at one hospital and the attendant seeking of corrective care at another facility. See id. at 1321. While we affirmed this case without creating binding precedent, we recognize today the sound foundations for the district court's concerns.
We do not find such a course compelled by Firestone. That opinion is ambiguous to some extent in providing guidance for the present circumstances. Strong language endorses the right of the parties to contract for a standard of review, but that right is premised on assumptions regarding trust law that do not apply to insurance policy plans. Appellees' counsel suggested at oral argument that language in the opinion applying the de novo standard of review "regardless of whether the plan at issue is funded or unfunded," Firestone, 109 S.Ct. at 956, indicates the Court's unwillingness to draw a distinction. This argument, however, mistakes the distinction between funded and unfunded for a very different distinction between insured and uninsured plans. While a distinction can be drawn reasonably, the Firestone opinion is written broadly enough, albeit dicta as applied here, to encompass review of insurance policy plans.
We are not prepared to abandon the use of the arbitrary and capricious standard for insurance policy plans that confer discretion. The duty of loyalty remains adequately preserved by finding abuse of discretion more readily when conflicting interests are apparent.
3 A. Scott & W. Fratcher, The Law of Trusts § 187, at 15 (4th ed.1988).
52 F.2d at 391. Thus, an improper motive sufficient to set aside a fiduciary's decision may be inferred from the fiduciary's failure to investigate or to interpret honestly evidence that greatly preponderates in one direction.
The matter of oral approval leads to an additional point raised by appellant. He asserts that the record shows that precertification was indeed obtained for the second admission. Several pieces of documentation available to Blue Cross at the time of its decision suggest his assertion could be true. First, a notation on Brown's hospital record for admission on September 29th lists Blue Cross' telephone number and "Pre-Cert with Judy." Second, a Blue Cross record of inquiry shows communication between Brown's hospital and Blue Cross on September 24th. This record mentions "PAC" and "hospital verification complete." Last, Brown's letter to Blue Cross dated March 2, 1988, states, in passing: "By the way Dr. Lupin informed me before any admittance to the Hospital they call Blue Cross, now I understand why I had to waite [sic] 2 hours before I was admitted the second time." One inference that might be culled from these documents is that a call was made and preadmission certification was obtained. Another inference is that Blue Cross acted arbitrarily and capriciously in denying Brown's claim if it did not further pursue the possibility that oral certification was validly given.
We cannot, however, grant relief to Brown on the basis of a question of material fact concerning whether preadmission certification was obtained. His counsel admitted at oral argument that he did not present any argument to the district court on the matter of having obtained PAC. We will not disturb the district court's grant of summary judgment on the basis of an argument not addressed to that forum. See Denis v. Liberty Mutual Ins. Co., 791 F.2d 846, 848-49 (11th Cir.1986).
Since we reverse and remand on other grounds, we do not perceive any bar to the assertion of this theory on remand since the relevant documentation was before the district court. As the exchange of oral argument revealed, though, additional discovery is undoubtedly needed in order for Brown to prevail on this theory.