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LANCASTER v. UNITED STATES SHOE CORP.

August 8, 1996

John G. LANCASTER, Sr., as Conservator of the Person and Estate of Donald A. Lancaster, Plaintiff,
v.
The UNITED STATES SHOE CORP., Defendant. The United States Shoe Corp., Counter-Complainant, v. John G. Lancaster, Sr., as Conservator of the Person and Estate of Donald A. Lancaster, Counter-Defendant.



The opinion of the court was delivered by: BRAZIL

 August 8, 1996

 BRAZIL, United States Magistrate Judge.

 I. INTRODUCTION

 Donald Lancaster ("Lancaster") suffered serious head injuries after being hit by a car. He is now confined in a nursing home, where he needs total assistance for virtually all his daily living activities. Lancaster's conservator enrolled him in United States Shoe ("U.S. Shoe") Corporation's health care plan for retirees. U.S. Shoe has declined to pay benefits for Lancaster's confinement, relying primarily on two grounds: (1) Lancaster exhausted a 365-day limit in the benefits plan on convalescent care benefits; and (2) the care Lancaster received was "custodial" and, hence, not "medically necessary." Lancaster's conservator has filed an ERISA action against U.S. Shoe and has moved for summary adjudication.

 We conclude that U.S. Shoe's denial of benefits was based on a legally impermissible interpretation of the benefits plan. We hold that, with one undisputed exception, the 365-day limit on convalescent care benefits is unenforceable. While the 365-day limit that U.S. Shoe attempts to enforce was in the benefits plan itself, it was not in the summary plan description. Where the summary plan description conflicts with the terms of the plan, the summary plan description controls.

 We further hold, applying the doctrine of reasonable expectations, that it was improper for U.S. Shoe to deny benefits on the grounds that the care Lancaster received was "custodial." We find that, based on the summary plan description, an insured would have reasonable expectations of coverage for nursing home care in circumstances similar to those in which Lancaster finds himself. The summary plan description does not state that coverage for nursing home care is not provided if the care is "custodial" and does not state that care is not "necessary" if it is "custodial." As we explain in detail below, denying coverage on the basis that care is "custodial" conflicts with the reasonable expectations of the insured.

 We grant Lancaster's motion for summary adjudication. We remand this case to the administrator of the benefits plan for further proceedings in accordance with this opinion. We retain jurisdiction.

 II. FACTS

 A. Lancaster's Accident

 1. On December 15, 1988, Lancaster was struck by a car. Lancaster Decl. (LD) at 2. At the time, he was an employee of U.S. Shoe. LD 2. As a result of the accident, Lancaster sustained major injuries, including head injuries. LD 2-3. He was taken to Santa Monica Hospital. AR 106. For a while, Lancaster was in a coma. LD 3.

 2. Lancaster eventually emerged from the coma. LD 3. He was released from Santa Monica Hospital into a skilled nursing facility, Synergos Neurological Center, on May 5, 1989. LD 3; AR 106. In June 1990, Lancaster was transferred from Synergos into Greenridge Convalescent Hospital ("Greenridge"), another skilled nursing facility. LD 3; see also infra P 19. Lancaster has remained at Greenridge since June 1990. LD 3. Lancaster requires total assistance for virtually all of his daily living activities. LD 3.

 3. Donald Lancaster's injuries left him unable to handle his affairs. LD 3. A court appointed John Lancaster, Donald's brother, to serve as Donald's conservator. LD 3. *fn1"

 B. The Benefits Plan

 4. U.S. Shoe provides its employees with a health benefits plan -- the United States Shoe Corporation Health Care Protection Plan ("the Plan"). Muntel Decl. (MD) at 2. The Plan is self-funded. MD 2. The head administrator of the Plan is the U.S. Shoe Benefit Committee ("the Benefit Committee"). MD 2. The Benefit Committee delegates most of its authority to administer the Plan, including the authority to process claims and to pay or deny claims, to Prudential Insurance Company of America ("Prudential"). MD 2. The Benefit Committee reviews appeals of claims determinations by Prudential.

 5. U.S. Shoe summarized the contents of the Plan for its employees by preparing and distributing a summary plan description (SPD). U.S. Shoe has provided the court with three different SPDs, each bearing different dates. The earliest SPD is dated "1/84" (henceforth, "the 1984 SPD"). Hakes Decl. (HD), Ex. A. The second SPD is dated "4/1/89-3/31/90" (henceforth, "the 1990 SPD," or simply "the SPD"). HD, Ex. B. The third SPD is dated "Sept. 1991" (henceforth, "the 1991 SPD"). HD, Ex. C. As we will explain below, the SPD that is controlling for purposes of our decision is the 1990 SPD. See infra § III(E)(4).

 6. At some time prior to July 20, 1990, the conservator's attorney reviewed the 1990 SPD. See AR 23. The 1990 SPD has the following important provisions. In an introductory section, the SPD states:

 
The Health Care plan provides protection against expenses you and your dependents may incur due to illness or injury. The choices which are available vary in the portion of the expenses you are required to pay. All the choices, however, protect you from the [sic] financial ruin due to a catastrophic condition.

 HD, Ex. B at 9 (emphasis added). The SPD also states that "[a] one million dollar lifetime cap has been placed on health care benefits for each person covered." HD, Ex. B, second (not numbered) page.

 7. The SPD has a section entitled "Extended Convalescent Care Benefits." In its entirety, that section states:

 
In order for any expenses to be covered, confinement in the Facility must start within 14 days following discharge from a hospital confinement of a minimum of three consecutive days. If necessary and reasonable, the following expenses are covered:
 
1. Room and board provided by the Facility except any charge that exceeds the Daily Room and Board Benefit of $ 18 to a maximum of $ 6,570 per disability.
 
2. Routine nursing care provided by the Facility, but not including a private duty nurse or other private-duty attendant.
 
3. Physical or speech therapy provided by the Facility or by others under arrangements with the Facility.
 
4. Medical social services provided by the Facility.
 
5. Such drugs, biologicals, supplies, appliances and equipment as are ordinarily provided by the Facility.
 
6. Medical services provided by an intern or resident-in-training of a hospital with which the Facility has a transfer agreement under a teaching program of the hospital but not including any other medical care or treatment by a doctor, including a resident doctor or intern, and other diagnostic and therapeutic services furnished to in-patients of the Facility by a hospital, and
 
7. Such other services necessary to the health of the patients as generally provided by the Facility.
 
Successive periods of confinement will be treated as one confinement unless:
 
a. The subsequent confinement is due to a completely unrelated cause or commences after complete recovery, or
 
b. In the case of your personal coverage, you have returned to active full-time work between confinements, or
 
c. In the case of your dependent at least 90 days have elapsed between confinements.

 HD, Ex. B at 18.

 8. In its "Definitions" section, the SPD defines "Extended Care Facility" as "an institution, or a distinct part of an institution, which has qualified as an Extended Care Facility for Medicare." HD, Ex. B at 9. The SPD defines "Home Health Care Agency" as

 
an organization, or its distinct part which,
 
a. Is primarily engaged in providing skilled nursing care and other therapeutic services for, and in the private residences of, persons recovering from an injury or disease, and
 
. . . .
 
d. Is not, other than incidentally, engaged in providing care or treatment of mentally ill, or in providing custodial-type care.

 HD, Ex. B at 9 (emphasis added). Part of the SPD's definition of "Hospital" is "an institution which . . . is not primarily a place for rest or the aged . . . or a nursing or convalescent home." HD, Ex. B at 10. The SPD defines "Illness" as a "bodily disorder or accidental injury or mental infirmity," adding that "successive bodily disorders and mental infirmities due to the same cause or related cause [sic] will be considered as one illness." HD, Ex. B at 10.

 9. The SPD has a section called "Excluded Expenses." Within that section, the SPD states that coverage is not provided for

 
services and supplies not reasonably necessary. To be "reasonably necessary", a service or supply must be ordered by a doctor and be commonly and customarily recognized throughout the doctor's profession as appropriate in the treatment of the diagnosed sickness or injury. It must neither be educational or experimental in nature, nor provided primarily for research. Also, the length of a hospital confinement and the hospital's services and supplies will be "reasonably necessary" only to the extent they are, as determined by Prudential, reasonably related to the treatment of the condition involved and not allocable to the patient's scholastic education or vocational training.

 HD, Ex. B at 22.

 10. The SPD has a section entitled "Home Health Care Benefits." In that section, the SPD states, "Expenses due to the following are not covered Home Health Care Expenses: . . . Care comprised of services and supplies which are provided to a Covered Individual primarily as custodial care assisting him in the activities of daily living." HD, Ex. B at 17.

 12. The SPD states, "In general, your participation in the Flexible Benefit Program ends on the date you stop working . . . However, you may be able to continue participation in the Program by taking the proper actions." HD, Ex. B at 3. The SPD adds, "Employees eligible for an immediate payout of retirement benefits may be offered the option to continue their own and their dependents' participation in the Health Care plan." HD, Ex. B at 4.

 13. The 1984 SPD is significantly different from the 1990 SPD. The most important difference, for our purposes, is that the 1984 SPD does not have a section addressing "Extended Convalescent Care Benefits." See HD, Ex. A. The 1984 SPD does have a section which states that coverage is given for "Nursing Care -- Private duty nursing by a registered graduate nurse," "In or Out of the Hospital." HD, Ex. A at 41.

 14. The 1991 SPD, on the other hand, is very similar to the 1990 SPD. There are only two differences of potential significance. The first is that the language "if necessary and reasonable, the following expenses are covered," in the "Extended Convalescent Care Benefits" section of the 1990 SPD, is replaced in the 1991 SPD by the language "if the charges are usual and prevailing, the following expenses are covered." HD, Ex. C at 17. The second difference is that the exclusion for "services and supplies not reasonably necessary" is replaced in the 1991 SPD by an exclusion for "services and supplies not medically necessary." HD, Ex. C at 20 (emphasis added). The exclusion in the 1991 SPD states:

 
To be 'medically necessary,' a service or supply must be ordered by a physician, must be commonly and customarily recognized throughout the physician's profession as appropriate in the treatment of the diagnosed sickness or injury and must be generally accepted by United States medical standards. It cannot be educational not [sic] experimental or investigational in nature. 'Educational' means that the primary purpose of the service or supply is to provide a patient with any of the following: training in the activities of daily living, instruction in scholastic skills such as reading and writing; preparation for an occupation; or treatment for learning disabilities. "Experimental or investigational" means that the medical use of a service or supply is still under study and the service or supply is not yet recognized throughout the physician's profession in the United States as safe and effective for diagnosis or treatment. Services or supplies which are provided only because an unnecessary service or supply is being provided will also be considered not needed. The length of a hospital confinement and the hospital's services and supplies will be "medically necessary" only to the extent that they are, as determined by the Claim Administrator, reasonably related to the treatment of the condition involved and not allocable to the patient's scholastic education or vocational training.

 HD, Ex. C at 20.

 15. The Plan itself is a document separate from the SPD. The Plan has the following important provisions. The Plan states:

 
The Benefit Committee shall have the power to administer this Plan and also such additional powers as may be conferred upon it by the Trust, including without limitation, the following powers . . .:
 
. . . .
 
(b) to interpret and construe this Plan in a nondiscriminatory manner consistent with its terms and provisions and with Section 501(c)(9) of the Internal Revenue Code of 1954, as amended; to determine all questions of eligibility and the status and rights of Employees, Qualified Dependents and others; to determine the benefits payable under this Plan and, where applicable, the method of distribution thereof; to make and enforce rules and regulations relating to such determination; and to decide such questions as may arise in connection with the operation of this Plan, whether or not specifically covered by any provision of the Plan; . . .

 PD, Ex. C.

 16. The Plan has a provision entitled "Convalescent Nursing Home Care Provisions Under Major Medical Expense Benefits." This provision states:

 
The term "Convalescent Nursing Home" means only an institution meeting the following requirements:
 
(1) It is operated pursuant to law and is primarily engaged in providing, for compensation from its patients, the following services for persons convalescing from sickness or injury -- room, board and twenty-four hour a day nursing service by one or more professional nurses and such other nursing personnel as are needed to provide adequate medical care.
 
(2) It provides such services under the full-time supervision of a proprietor or employee who is a Physician or a registered graduate nurse (R.N.).
 
(3) It maintains adequate medical records, and has available the services of a Physician under an established agreement if not supervised by a Physician.
 
(4) It has established methods and procedures for the dispensing and administering of drugs and biologicals.
 
(5) It has a written transfer agreement in effect with one or more hospitals.
 
The term "Convalescent Nursing Home" shall not include any institution or part thereof which is used principally as a rest facility for the aged, for drug addicts, for alcoholics or for the mentally ill.
 
For the purpose of the Major Medical Expense Coverage, when charges are made by a Convalescent Nursing Home for the additional services and supplies described below which are furnished during a person's confinement therein and while the conditions set forth below are satisfied, those charges shall be considered charges made by a Hospital and that confinement shall be considered a Hospital confinement.
 
Additional Services and Supplies: Subsection (1) and (2) of the [Major Medical Expense] Coverage are enlarged to include the following additional services and supplies --
 
(a) Convalescent Nursing Home room and board (including regular daily services and supplies furnished by the Convalescent Nursing Home);
 
(b) Routine nursing care provided by the Convalescent Nursing Home but not including the services of a private-duty nurse or other private-duty attendant;
 
(c) Physical or speech therapy provided by the Convalescent Nursing Home or by others under arrangements with the Convalescent Nursing Home;
 
(d) Medical social services provided by the Convalescent Nursing Home;
 
(e) Drugs, biologicals, supplies, appliances and equipment as are ordinarily provided by the Convalescent Nursing Home for the care and treatment of its inpatients;
 
(f) Medical services provided by an intern or resident-in-training of a hospital with which the Convalescent Nursing Home has in effect a transfer agreement under a teaching program of such hospital; and
 
(g) Other services and supplies, exclusive of professional services, furnished by the Convalescent Nursing Home for medical care therein.
 
Limitations -- The additional services and supplies shall be included only:
 
(1) If furnished during no more than three hundred sixty-five days of the person's Convalescent Nursing Home confinement due to the same or related causes, and
 
(2) To the extent that the room and board charges therefor do not exceed a daily limit of $ 18.00
 
Conditions: All of the following --
 
(1) The person was confined in a Hospital for a least three consecutive days.
 
(2) The Convalescent Nursing Home confinement is recommended by his Physician for convalescence from a condition which caused such Hospital confinement, or from a related condition, and commences
 
(b) within fourteen days after a related Convalescent Nursing Home confinement
 
(3) He is under the continuous care of his Physician.
 
(4) Twenty-four hours a day nursing care of the person is essential, as certified by his Physician.
 
Related Convalescent Nursing Home Confinements: Separate Convalescent Nursing Home confinements of a person will be considered related unless --
 
(1) the later confinement commences after complete recovery from the illness causing an earlier confinement, or
 
(2) the later confinement results from causes entirely unrelated to the causes of an earlier confinement, or
 
(3) in the case of an Employee, the confinements are separated by his compliance with the active work requirement of the General Definitions.
 
(4) in the case of a dependent of the Employee, the confinements are separated by at least ninety days.

 PD, Ex. E (bold emphasis added).

 17. The Plan also has a section entitled "Convalescent Nursing Home Expense Benefit Provisions Under Hospital Expense Benefits." MD, Ex. A at CNH-2A. There are no material differences, for purposes of this case, between this section and the section entitled "Convalescent Nursing Home Care ...


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