Insurer-Friendly Case Law Under Fire in Fifth Circuit

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By Jacklyn Wille

Case law that helped insurers and benefit plans survive legal challenges for more than two decades may be on the chopping block in one federal appeals court ( Ariana M. v. Humana Health Plan of Tex., Inc. , 5th Cir., No. 16-20174, order granting en banc rehearing 7/10/17 ).

The U.S. Court of Appeals for the Fifth Circuit announced July 10 that all the court’s judges would rehear a recent case raising questions about the proper standard of judicial review in disputes over denied benefits under the Employee Retirement Income Security Act. In that case, three Fifth Circuit judges affirmed Humana Health Plan of Texas Inc.'s refusal to cover a teenager’s eating disorder treatment. The judges’ decision was guided by the Fifth Circuit’s insurer-friendly 1991 ruling in Pierre v. Conn. Gen. Life Ins. Co., which all three judges said should be re-examined or overturned.

Pierre forces courts to give deference to an ERISA plan administrator’s factual determinations, regardless of what a given plan document says. In calling for Pierre to be revisited, the judges emphasized that the standard of review in an ERISA case is often outcome-determinative in favor of insurers and benefit plans. The judges also criticized Pierre for frustrating the growing collection of state laws giving ERISA plan beneficiaries a better chance of prevailing in court.

‘Dead on Arrival’

Ray T. Khirallah Jr., a plaintiff-side attorney with Guerra Burke & Khirallah LLP in San Antonio, said he stopped bringing ERISA cases because of the deference given to insurers under Pierre.

“We effectively quit taking ERISA cases based on our experience up against this Pierre case and the deferential review of factual issues, because it was practically impossible to ever prevail,” Khirallah told Bloomberg BNA.

Under the current state of the law, ERISA cases are usually “dead on arrival,” unless a robust factual record is developed during a plan’s internal appeals process, Khirallah said. Because this process usually involves tight deadlines and most participants navigate it without a lawyer, that rarely happens, he said.

According to Khirallah, a decision overturning Pierre and allowing for more judicial scrutiny of benefit denials would be a “huge shift” that would allow him to resume practicing in the ERISA space.

More importantly, it would force insurers to make “much more honest decisions” when faced with approving or denying benefits, which Khirallah said can be a “life-changing” decision for the individual in question.

Discretionary Clause Bans

The court’s decision to rehear the case is a victory for the Texas Department of Insurance and the state’s Office of Public Insurance Counsel. They both urged the court to rehear the case and overrule Pierre, with the insurance department saying that Pierre frustrates a Texas regulation attempting to give insured individuals a more favorable standard of judicial review when they challenge benefit denials in court.

The Texas regulation and others like it are commonly referred to as bans on discretionary clauses, because they prevent insurers from adopting plan language giving them discretion to decide benefit claims. The bans are a response to federal courts’ practice of reviewing insurer decisions more leniently when a discretionary clause is present. Banning these clauses is an attempt by states to ensure that an insurer’s decision denying benefits is reviewed more closely by the courts.

AARP and the Alliance for Eating Disorders Awareness also filed briefs urging the overturn of Pierre and the imposition of heightened judicial scrutiny on benefit denials. The eating disorder group argued that insurers with “ Pierre deference” are encouraged to deny coverage for monetary gain and to avoid making impartial evaluations of medical necessity.

Circuit Split

In calling for a re-examination of Pierre, the Fifth Circuit judges who ruled in favor of Humana criticized Pierre for being out of step with rulings of the Second, Third, Fourth, Sixth, Seventh, Ninth, and Eleventh circuits.

The judges also expressed concern about the importance that judicial deference can play in benefit litigation, likening it to the instant replay in a sports contest that fails to overturn a referee’s “blown call.”

Jonathan M. Herman, a Dallas-based attorney who represents health insurance companies, said the decision to rehear the Humana case appeared to be motivated by the questions of justice and federal court discord identified by the judges in the case.

“It is highly unusual for the Fifth Circuit to cite to the Official Playing Rules of the National Football League in its opinion, even in a footnote,” Herman told Bloomberg BNA in an email. “But the concurrence speaks to Fifth Circuit concern that existing precedent may be out of step with that of its sister Circuits, and which might result in an unjust outcome for ‘a teenager with a serious eating disorder.’”

“The Court seems to want to ensure that ‘decisions made by retirement and health plans during some of life’s most difficult times’ are made in a thoughtful, deliberative manner so as to balance the interests of all affected parties,” Herman said, quoting from the Humana case’s special concurrence.

Next Up: Preemption?

State discretionary clause bans have been challenged in many courts as preempted by ERISA. In May, the Ninth Circuit upheld California’s ban on discretionary clauses from an ERISA preemption challenge. The Seventh Circuit upheld Illinois’ ban in 2015.

If the Fifth Circuit overrules Pierre, its next task may be deciding whether Texas’ ban on discretionary clauses is preempted by ERISA.

The court’s April ruling favoring Humana didn’t consider this question, because the judges said the standard of review was determined by Pierre and not by the existence—or nonexistence—of a discretionary clause in an insurance contract or benefit plan.

The plan participant seeking benefits from Humana is represented by Kantor & Kantor LLP and Plummer Law Group. Humana is represented by McGinnis Lochridge & Kilgore LLP.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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