Olan Jett v. Blue Cross and Blue Shield of Alabama, Inc., Medical Expense Plan

JOHNSON, Circuit Judge,

concurring in part and dissenting in part:

Although I concur in the standard of appellate review applied by this Court to the district court judgment below, I respectfully dissent from the Court's conclusion that the district court erred in finding that Blue Cross improperly failed to pay the benefits claimed by Jett. 1

I. THE STANDARD OF APPELLATE REVIEW

The Court, although it does not state so explicitly, clearly applies a de novo standard of review to the district court’s ultimate judgment that Blue Cross acted arbitrarily and capriciously in denying the disputed medical benefits. I concur in this aspect of the Court’s reasoning. I discuss the issue only because there is currently some confusion in this circuit’s caselaw as to the appropriate standard of appellate review in cases involving denial of employee benefits under ERISA-governed plans.

In Guy v. Southeastern Iron Workers’ Welfare Fund, 877 F.2d 37, 39 (11th Cir.1989), a panel of this Court held that it was limited to “determin[ing] whether the district court’s finding that the [ERISA-gov-erned] Fund’s decision was arbitrary and capricious is clearly erroneous,” citing Musto v. American General Corp., 861 F.2d 897, 913 (6th Cir.1988), cert. denied, — U.S. -, 109 S.Ct. 1745 , 104 L.Ed.2d 182 (1989), and Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1093 (9th Cir.1985). Ellenburg , however, merely restated the familiar principle that a district court’s factual findings will not be disturbed on appeal unless “clearly erroneous.” See 763 *1141 F.2d at 1093 ; Fed.Rule Civ.P. 52(a). 2 The factual findings underlying a district court’s resolution of the arbitrary-and-capricious issue are unquestionably entitled to “clearly erroneous” review. The ultimate question whether a benefits decision was arbitrary and capricious, however, is clearly one of law subject to de novo review on appeal. This Court’s precedents, apart from Guy , have uniformly so stated or assumed. See Harris v. Pullman Standard, Inc., 809 F.2d 1495, 1499 (11th Cir.1987) (this Court finding denial of benefits “arbitrary and capricious as a matter of law”); Anderson v. Ciba-Geigy Corp., 759 F.2d 1518, 1522 (11th Cir.), cert. denied, 474 U.S. 995 , 106 S.Ct. 410 , 88 L.Ed.2d 360 (1985) (applying arbitrary-and-capricious standard de novo); Sharron v. Amalgamated Ins. Agency Services, Inc., 704 F.2d 562 , 567 n. 11, 567-69 (11th Cir.1983) (same). 3

Because the Court’s implicit standard of review in this case is fully in accord with the weight of controlling precedent on this issue, I concur in its opinion to that extent.

II. THE DENIAL OF BENEFITS

The Court finds that the district court improperly based its decision on a de novo review of the record and its own findings of fact. I agree that Blue Cross’s denial of benefits must be reviewed only in light of the information available to it prior to the challenged decision. See Offutt v. Prudential Ins. Co., 735 F.2d 948, 950 (5th Cir.1984). I cannot agree, however, that Blue Cross’s denial of benefits was reasonable in this case in light of the information it received. As the majority correctly notes, the information before Blue Cross at the time the decision to deny benefits was made consisted primarily of Jett’s hospital records and letters written by his two treating physicians stating that in their professional judgment hospitalization had been medically necessary.

Blue Cross did not assert any rational basis for its conclusion that Jett’s hospitalization was not necessary, other than the fact that he was released on weekends. Blue Cross concluded that these releases indicated Jett was not suicidal. An obvious alternative explanation, however, is that the weekend releases were necessary in order to assess any improvements in Jett’s mental condition. This supports the conclusion that Blue Cross acted arbitrarily and capriciously. See Motor Vehicle Mfrs. Ass’n v. State Farm Mutual Auto, Ins. Co., 463 U.S. 29, 43 , 103 S.Ct. 2856, 2866 , 77 L.Ed.2d 443 (1983) (a decision is arbitrary and capricious if the decisionmaker “entirely failed to consider an important aspect of the problem [or] offered an explanation for its decision that runs counter to the evidence”).

An administrator’s decision must be supported by substantial evidence in order to avoid being found arbitrary and capricious. See Gunderson v. W.R. Grace & Co. Long Term Disability Income Plan, 874 F.2d 496, 500 (8th Cir.1989); Brown v. Retirement Committee, 797 F.2d 521, 525 (7th Cir.1986), cert. denied, 479 U.S. 1094 , 107 S.Ct. 1311 , 94 L.Ed.2d 165 (1987); Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1093 (9th Cir.1985). In this case, Blue Cross had no evidence before it that Jett’s hospitalization was unnecessary, other than the fact of Jett’s weekend releases. Given *1142 the evidence that was before Blue Cross— the expressed professional judgment of the two treating physicians that Jett’s hospitalization was necessary — Blue Cross was surely obligated, at the very least, to contact those physicians and investigate the claim more fully. See Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43 , 103 S.Ct. at 2866 (decisionmaker “must examine the relevant data and articulate a satisfactory explanation for its action”).

The Court excuses Blue Cross’s failure reasonably to investigate Jett’s claim on the ground that the Plan in this case gave Blue Cross discretion whether to seek out further information. Granting this arguen-do, I find it odd, to say the least, that Blue Cross, although it could not be troubled to contact the treating physicians with firsthand knowledge of the case, did make the effort of calling in an outside consultant who had never laid eyes on Jett. Blue Cross’s claim not to have acted arbitrarily or capriciously ultimately rests on the outside consultant’s conclusion, based on a review of the paper record, that Jett’s hospitalization was not medically necessary. The validity of that conclusion, in light of the testimony eventually developed at trial, is questionable. In any event, I do not think Blue Cross can be heard to proffer the opinion of a single outside consultant as a sufficient basis for its decision, at the same time that it selectively declined to investigate more relevant sources of information, such as the treating physicians themselves. Whether Blue Cross could reasonably have denied Jett’s claim had it made such an evenhanded inquiry is not really the issue. The point is that it acted arbitrarily and capriciously in the manner in which it responded to Jett’s claim.

The majority emphasizes that Dr. McDa-nal’s letter to Blue Cross did not state in so many words that provision of the drug treatments Jett received would have been extremely dangerous in an outpatient context. But I assume it is within the ordinary scope of professional medical knowledge that the drugs in question — including Elavil, Lodiomil, Mellaril, Stelazine, and Li-brax — may be dangerous if administered on an outpatient basis. Given that Dr. McDanal’s letter did refer to the drug treatment, and that he and the other treating physician asserted the medical necessity of Jett’s hospitalization, surely Blue Cross was reasonably put on notice as to this potential justification for Jett’s hospitalization. 4 Of course, Blue Cross could have clarified the obvious import of Dr. McDanal’s letter by simply going to him. 5

III. CONCLUSION

For the foregoing reasons, I respectfully dissent from the Court’s reversal of the district court’s judgment in this case.

. I also agree with the Court that the proper inquiry in reviewing the denial of benefits in this case is whether Blue Cross abused its discretion or acted arbitrarily or capriciously. See Guy v. Southeastern Iron Workers' Welfare Fund, 877 F.2d 37, 38-39 (11th Cir.1989) (equating the two standards).

. The Sixth Circuit in Musto did state, in a conclusory holding, that the district court’s finding of arbitrary and capricious conduct in that case “was clearly erroneous." 861 F.2d at 913 . The Sixth Circuit did not cite Rule 52(a), however, or otherwise explain its standard of review. It may simply have intended to underscore its belief that the district court had erred. In any event, Guy's reliance on cases from other circuits is inappropriate in light of contrary controlling precedent in this circuit.

. The present Fifth Circuit has also articulated this distinction. See Offutt v. Prudential Ins. Co., 735 F.2d 948, 949 (5th Cir.1984) (“Finding that [the denial of benefits] was not arbitrary or capricious, the district court denied the employee relief. Having considered the employee’s detail of alleged errors made by the district court, we conclude that its fact-findings were not clearly erroneous and its legal conclusions based on them were correct.’’); see also Berry v. Ciba-Geigy Corp., 761 F.2d 1003, 1006-07 (4th Cir.1985) (whether arbitrary-and-capricious standard has been violated is a question of law for the court, not one of fact for a jury).

. Blue Cross's Medical Director, Dr. Ryce, who undertook the initial review of Jett's medical records, was presumably aware of the potential problems posed by outpatient treatment with the drugs prescribed for Jett. Dr. Sides, the outside consultant in this case, was a psychologist rather than an M.D. psychiatrist, and therefore not qualified to assess the medication given to Jett. This constitutes all the more reason why Blue Cross, through Dr. Ryce, should have contacted Jett’s treating physicians.

. I find Blue Cross's asserted reasons for declining to contact the treating physicians weak and self-serving. See opinion of the Court, supra, 1139-40. As to the first reason, that the hospital records should have contained all information relevant to the medical necessity determination, it was Blue Cross which questioned the validity of, and basis for, the expressed professional judgment contained in those records that hospitalization was medically necessary. Surely it was thus incumbent on Blue Cross to investigate further, and not in a manner selectively ignoring the most obvious relevant sources of information. Reasons two and three are makeweights. As to reason four, nothing would have prevented Blue Cross from reasonably taking into account any possible self-interest on the part of the treating physicians after assessing whatever information they provided.