Instead the parties are at odds about whether, as a matter of law, Fund's Trustees ("Trustees") properly exercised their duties as administrators of their benefit plan.
Fund has established an Employee Welfare Benefit Plan ("Plan") as a self-funded group health plan administered by Trustees pursuant to Articles IV and V of Fund's Trust Agreement ("Trust Agreement" or, where a specific provision is being cited, "TA")(CS 12(M) PP1-3; TA Art. IV § 17; TA Art. V § 2). Employees participate in the Plan "when their employers, pursuant to the requirements of collective bargaining agreements, negotiated with affiliates of the International Brotherhood of Teamsters, make contributions on their behalf to provide medical, dental, vision and life insurance coverage to covered participant[s] and their families" (CS 12(M) P8).
On December 17, 1992 Trustees unanimously approved the acceptance into Fund coverage of 4200 actively employed participants from some 284 companies that had previously been contributing to the 142 Fund on behalf of those participants. Those new participants were subject to several conditions. Of particular importance to this case, medical coverage was conditional on a participant being deemed an "active employee" within the meaning of the Plan as of January 31, 1993 (id. PP12-14).
Sever was an employee of Central Distributing Company ("Central"), one of the companies that became a new contributor to Fund on January 31, 1993 (CS 12(M) P16; H. 12(N) PP6-7). As of that date Sever ceased to be an eligible participant in the 142 Fund (F. 12(M) P7). Instead Fund received health contributions from Central on Sever's behalf from January 31, 1993 through March 13, 1993 (CS 12(M) P22; H. 12(N) P8), suggesting that Sever was an active employee covered by the Plan. But both before and throughout that period Sever suffered from an advanced stage of amyotrophic lateral sclerosis ("ALS," commonly referred to as Lou Gehrig's Disease)(H. 12(N) P9). That illness affected Sever's upper and lower extremities and the muscles controlling his speech, swallowing and breathing (CS 12(M) P18).
On February 15, 1993 Sever was admitted to Hospitals, where he remained until he was discharged on March 10, 1993 (CS 12(M) P19; H. 12(N) PP10-11). During that hospital stay Sever incurred approximately $ 100,000 in medical expenses (CS 12(M) P21). Sever died on the following day, March 11 (CS 12(M) P20; H. 12(N) P13).
Sever's widow Darlene timely presented a claim to Trustees for all of the expenses incurred as a result of Sever's hospitalization (H. 12(N) P14). Due to the nature of Sever's illness, Trustees questioned whether he had been eligible for benefits under the Plan (CS Ex. 2 at 2). While Fund had initially paid $ 1,941.60 in benefits,
Trustees denied the remaining claims because they determined that Sever's medical condition precluded his having been an "active employee" as defined by the Plan on January 31, 1993, thus rendering him ineligible for coverage (CS 12(M) P23; H. 12(N) P15).
On February 18, 1994 Fund wrote Sever's widow a letter denying her claim for medical benefits on behalf of her husband (CS Ex. 2 at 16-18). In accordance with the ERISA procedures and requirements for notification when a plan administrator decides to deny a benefit claim (see 29 C.F.R. § 2560.503-1(f)), Fund gave the specific reason for that denial, referred to the pertinent plan provisions on which the denial was based, described any additional information that Sever's widow might have submitted to perfect the claim and explained the next step for appellate review. Sever's widow took all of the steps required to perfect a timely appeal of Trustees' denial of medical benefits, but to no avail (CS 12(M) P48; H. 12(N) P35). On May 25, 1994 the Level II Claim Appeal Committee denied the claimed benefits. And finally, on November 29, 1994 Trustees affirmed the denial of coverage in the Level III Claim Appeal Procedure, the final step in the review process.
Before his discharge from the hospital, Sever had assigned his right to receive health benefits to Hospitals (CS 12(M) P50; H. 12(N) P36). In this action Hospitals as assignee sued Fund, alleging that Trustees had breached their fiduciary duties by arbitrarily and capriciously denying Sever's widow's claim for medical benefits (CS 12(M) P51; H. 12(N) P37).
Breach of Duty Under ERISA
ERISA Standard of Review
ERISA § 1132(a)(1)(B) expressly authorizes suits by participants or their beneficiaries against fiduciaries and plan administrators to challenge benefit eligibility determinations, and Hospitals as assignee thus stand in the shoes of a permitted ERISA plaintiff. While ERISA itself does not prescribe the appropriate standard of judicial review for such actions, Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989) has definitively set out that standard for the review of benefit eligibility questions and health plan interpretations:
Consistent with established principles of trust law, we hold that a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the plan administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.
Where a plan confers power on the administrator to exercise discretion, a highly deferential arbitrary-and-capricious standard of review is called for ( Chojnacki v. Georgia-Pacific Corp., 108 F.3d 810, 814 (7th Cir. 1996)). To determine what degree of deference (if any) to accord to Trustees' determination that Sever was not eligible for benefits, this opinion must first examine the Plan's language to see whether it conferred any discretionary authority on Trustees. In that respect this Court reviews the contractual language of the Plan de novo ( Ramsey v. Hercules Inc., 77 F.3d 199, 205 (7th Cir. 1996)).
Two provisions of the Trust Agreement inform the necessary analysis (CS Ex. 3 at 13-14):
Article IV, Sec. 17. The Trustees, by majority action, shall have the power to construe the provisions of this Agreement and the terms and regulations of the Health and Welfare Plan; and any construction adopted by the Trustees in good faith shall be binding....The Trustees are vested with discretionary and final authority in construing plan documents of the Health and Welfare Fund.