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Escalante v. California Physicians' Service

United States District Court, C.D. California

July 29, 2016

LUIS ESCALANTE, on behalf of himself and all others similarly situated, Plaintiff,
v.
CALIFORNIA PHYSICIANS' SERVICE dba BLUE SHIELD OF CALIFORNIA, Defendants.

          ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT IN PART AND DENYING MOTION IN PART

          DEAN D. PREGERSON United States District Judge.

         As described in this court’s earlier Orders, Plaintiff Luis Escalante (“Plaintiff”) was covered by a group health insurance policy issued by Defendant Blue Shield of California (“Defendant” or “Blue Shield”). (Decl. Michael C. Godino, Ex. 1 at 2.) Plaintiff alleges that he suffers from degenerative disc disease (“DDD”) and that his doctor recommended he undergo artificial disc replacement (“ADR”) surgery instead of a more traditional lumbar fusion. (Compl. at ¶ 16-17.) Plaintiff requested authorization from Blue Shield to undergo ADR surgery, but Blue Shield denied Plaintiff’s request after finding ADR surgery was excluded from coverage as investigational because “the efficacy of [ADR] has not been validated by the peer reviewed literature.”[1] (Decl. Godino, Ex. 28 at 484.) Plaintiff appealed the decision to both Blue Shield and the California Department of Managed Health Care, and was again denied. (Id., Ex. 30 at 494.) Plaintiff brought suit, on behalf of a now certified class, challenging Blue Shield’s ADR policy under the Employee Retirement Security Act of 1974 (“ERISA”). Blue Shield now moves for summary judgment.

         II. Legal Standard

         Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). All reasonable inferences from the evidence must be drawn in favor of the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 242 (1986). If the moving party does not bear the burden of proof at trial, it is entitled to summary judgment if it can demonstrate that “there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 323.

         Once the moving party meets its burden, the burden shifts to the nonmoving party opposing the motion, who must "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256. Summary judgment is warranted if a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. A genuine issue exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party, " and material facts are those "that might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248. There is no genuine issue of fact "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         It is not the court's task "to scour the record in search of a genuine issue of triable fact." Keenan v. Allan, 91 F.3d 1275, 1278 (9th Cir.1996). Counsel has an obligation to lay out their support clearly. Carmen v. San Francisco Sch. Dist., 237 F.3d 1026, 1031 (9th Cir.2001). The court "need not examine the entire file for evidence establishing a genuine issue of fact, where the evidence is not set forth in the opposition papers with adequate references so that it could conveniently be found." Id.

         III. Discussion

         A. Standard of Review

         There is no dispute that the plan at issue here is governed by the Employee Retirement Security Act of 1974 ("ERISA"). ERISA “permits a person denied benefits under an employee benefit plan to challenge that denial in federal court.” 29 U.S.C.A. § 1132(a)(1)(B); Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008). “In determining the appropriate standard of review for actions under [ERISA], we are guided by principles of trust law.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Courts should “analogize a plan administrator to the trustee of a common-law trust” and “consider a benefit determination to be a fiduciary act (i.e., an act in which the administrator owes a special duty of loyalty to the plan beneficiaries).” Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008).

         “Principles of trust law require courts to review a denial of plan benefits ‘under a de novo standard’ unless the plan provides to the contrary, ” in which case a more deferential standard of review is appropriate. Id. at 111 (quoting Firestone, 489 U.S. at 115). Therefore, the “starting point” in determining the applicable standard of review is whether the terms of the ERISA plan “unambiguously grant discretion to the administrator.” Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 962-63 (9th Cir. 2006). When the plan does not confer discretionary authority to the plan administrator to determine benefit eligibility or interpret the terms of the plan, a court must review the denial of benefits de novo (the default standard of review). Id. at 963; see Metropolitan Life Ins. Co., 554 U.S. at 111. “But if the plan does confer discretionary authority as a matter of contractual agreement, then the standard of review shifts to abuse of discretion.” Abatie, 458 F.3d at 963.

         Here, the plan “Contract” is defined as the contract between Blue Shield and Plaintiff’s employer, Provident Health. (Decl. Godino, Ex. 1 at 6, 8; see generally decl. Leslie Crawford, Ex. 3 at 17.) That contract expressly incorporates the plan's Evidences of Coverage (“EOC”). (Decl. Crawford, Ex. 3 at 21.) The “Plan Interpretation” section of Plaintiff's plan's EOC provides that “Blue Shield shall have the power and discretionary authority to construe and interpret the provisions of the contract, to determine the benefits of the Contract, and determine eligibility to receive Benefits under the Contract.” (Decl. Godino, Ex. 1 at 5.) All of the class members’ EOCs include this provision. (Id.; Decl. Joan Russo, Ex. 4 ¶ 3.)

         Plaintiff alleges that the Summary Plan Description (“SDP”) contradicts the “Plan Interpretation” section of the EOC by designating Plaintiff’s employer, not Blue Shield, as the “Plan Administrator” with sole fiduciary discretionary authority over the plan. (Opp. at 14:19-24; decl. Luis Escalante, Ex. 1 at 11.) At the same time, however, the SDP’s “Welfare Plan Information” section states that Blue Shield has discretionary authority over all Health Maintenance Organization medical plans in California, such as Plaintiff’s. The section provides:

Blue Shield of California is the named claims fiduciary for the Health Maintenance Organization medical plans in California, as defined in ERISA. Blue Shield . . . has discretionary authority to make decisions on claim appeals and to interpret the terms of the Health Maintenance plans.

(Supp’l. Decl. Godino, Ex. 34 at 546.)

         Regardless, the SDP, upon which Plaintiff relies, itself provides that “[i]f any conflicts arise between this summary and the Plan documents and contracts, the Plan documents and contract as interpreted by the Plan Administrator and fiduciaries will govern.” (Decl. Escalante, Ex. 1 at 10 (emphasis in original).) “Plan documents and contract” refers to the contract between Plaintiff’s employer and Blue Shield. That contract expressly incorporates the EOC, which identifies Blue Shield, by name, as having the discretionary authority to interpret the contract and make benefits determinations. Accordingly, this court will review Blue Shield’s denial of benefits for abuse of discretion.

         B. Scope of Review and Level of Skepticism

         Blue Shield argues that this court should review Blue Shield’s coverage decision for abuse of discretion, tempered by a low degree of skepticism or no skepticism at all. The manner in which a court applies the abuse of discretion standard of review depends on whether the plan administrator is operating under a conflict of interest. Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623, 629 (9th Cir. 2009). Where there is no conflict, “judicial review of a plan administrator’s benefits determination involves a straightforward application of the abuse of discretion standard” and the plan administrator’s decision can be upheld if it is “grounded on any reasonable basis.” Id. at 629. “In other words, where there is no risk of bias on the part of the administrator, the existence of a ‘single persuasive medical opinion’ supporting the administrator’s decisions can be sufficient to affirm, so long as the administrator does not construe the language of the plan unreasonably or render its decision without explanation.” Id. at 629-30 (quoting Boyd v. Bert Bell/Pete Rozelle NFL Players Ret. Plan, 410 F.3d 1173, 1179 (9th Cir. 2005)); see Conkright v. Frommert, 559 U.S. 506, 130 (2010).

         Where, however, the plan administrator operates under a conflict of interest, the abuse of discretion standard “requires a more complex analysis, ” in which the reviewing court must weigh the conflict as one factor in determining whether there was an abuse of discretion. Id. at 629-630, 632. An insurer that acts as both the plan administrator and the funding source for benefits operates under a structural conflict of interest. Abatie, 458 F.3d at 965 (citing Tremain v. Bell Indus. Inc., 196 F.3d 970, 976 (9th Cir. 1999)). A structural conflict of interest exists because, where the plan administrator is also the insurer, “benefits are paid out of the administrator’s own pocket, so by denying benefits, the administrator retains money for itself.” Montour, 588 F.3d at 630. Blue Shield acknowledges that a structural conflict of interest exists here.

         Where a conflict exists, abuse of discretion review must be informed by the nature, extent and effect the conflict has on the decision-making process, discounting the deference given to the plan administrator’s decision accordingly. Abatie, 458 F.3d at 967; Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 674 (9th Cir. 2011). This review requires “a case-by-case balance, ” in which “[a] district court, when faced with all the facts and circumstances, must decide . . . how much or how little to credit the plan ...


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