Court Considers Scope of Administrative Record in Health Coverage Case

An employer sponsored an insured group health plan that granted the insurer discretionary authority to determine benefits eligibility and to construe the plan’s terms. Following an accident, a plan participant underwent spinal surgery and intensive inpatient rehabilitation, including prescribed treatment using a neuromuscular electrical stimulation device. The insurer— who functioned as the plan administrator and payor of plan benefits— declined to cover the treatment, finding it not medically necessary. The participant appealed, exhausted all administrative remedies including an external review by an independent third party, then filed suit. The insurer filed a motion seeking to limit the court’s review to the ERISA administrative record and a deferential standard of review.

The participant sought discovery outside of the administrative record on two bases. First, because the insurer “both determines whether an employee is eligible for benefits and pays benefits out of his own pocket,” he asserted that there was a conflict of interest to be explored via discovery. Finding no conflict because the external review was performed by a physician selected from a list approved by the state’s division of insurance, the court declined to permit discovery on that basis. Second, the participant sought to introduce new expert testimony regarding the device and its medical necessity in his case. The court declined to admit additional evidence at this point, noting that the participant had not specified what additional evidence he would provide or why he had not presented it during the administrative process. But, because at this early stage the administrative record had not been produced, the court also declined to limit the case to the administrative record, explaining that the participant must demonstrate good cause for the court to consider additional evidence. Further, the court found that the plan’s discretionary clause was void due to a state law precluding discretionary clauses in insurance policies, which was “saved” from ERISA preemption as a law regulating insurance. As a result, the court said it would apply the nondeferential (“de novo”) standard of review.

EBIA Comment: While some of these rulings were provisional given the early stage of the proceedings, plan administrators and plan sponsors might still find them instructive. Generally, courts limit their review to evidence created during the plan’s claims process —the administrative record—as that was the information available at the time the decision was made. There are, however, some exceptions, such as situations involving complex medical questions, the credibility of medical experts, or evidence that could not have been presented in the administrative process. For more information, see EBIA’s ERISA Compliance manual at Sections XXXVI.C (“Standard of Judicial Review Applied to Benefit Decisions Under ERISA Plans”), XXXVI.D (“Scope of Judicial Review of Benefits Decisions Under ERISA Plans”), and XXXIX.H.3 (“State Laws Involving Discretionary Language in Insurance Policies”). See also EBIA’s Self-Insured Health Plans manual at Section XXVI.J (“Litigation Issues”).

Contributing Editors: EBIA Staff.