Ninth Circuit Rejects Reprocessing of Denied Claims in Wit v. UBH

On January 26, 2023, the US Court of Appeals for the Ninth Circuit released an opinion that expands upon its previously released memorandum disposition reversing a district court’s judgment that United Behavioral Health (UBH) wrongfully denied benefits to plaintiffs by using overly restrictive criteria for administering claims for treatment of mental health and substance abuse disorders.

Plaintiffs initially filed suit against UBH in 2014, bringing claims under ERISA against the insurer for breach of fiduciary duty and improper denial of benefits. Plaintiffs alleged that UBH improperly developed and relied on internal guidelines that were inconsistent with the plans’ terms and with state-mandated criteria. Plaintiffs also alleged the plans’ provided coverage for treatment was consistent with generally accepted standards of care (GASC) but that UBH’s guidelines for making benefit determinations were more restrictive than GASC.

After a bench trial, the district court ruled in March 2019 that UBH had breached its fiduciary duties and wrongfully denied benefits because its guidelines impermissibly deviated from GASC and state-mandated criteria. Notably, the district court based its analysis in part on UBH’s dual role as both plan administrator and insurer, which it deemed a structural conflict of interest, as well as the incentivization for UBH to keep its expenses down, which it deemed a financial conflict of interest.

As a result, in November 2020, the district court directed the implementation of court-determined claims processing guidelines, ordered the “reprocessing” of all plaintiff class members’ claims under these guidelines and appointed a special master to oversee compliance for a 10-year period.

UBH appealed the district court’s decision to the Ninth Circuit on the following grounds:

• The court erred in concluding the insurer’s guidelines impermissibly deviated from GASC.
• The court did not apply the appropriate level of deference to the insurer’s interpretation of the plans.
• The unnamed plaintiffs in the “class” certified by the district court failed to exhaust their claims administratively in accordance with plan requirements. (UBH did not appeal the district court’s determination that the guidelines were impermissibly inconsistent with state-mandated criteria.)

The Ninth Circuit agreed with UBH on each of these points, holding that the district court misapplied the usual (and largely deferential) “abuse of discretion” standard of review afforded to plan administrators by substituting its own plan interpretations for those of UBH without regard to whether UBH abused its discretionary authority when it denied these claims. In the panel’s view, UBH did not abuse its discretionary authority, even when considering both the structural and financial conflicts of interest.

In the panel’s view, ERISA does not mandate what kind of benefits employers must provide but instead concerns itself with the written terms of benefit plans. Nor does ERISA necessarily mandate consistency with GASC; rather, ERISA mandates that a plan administrator (UBH, in this case) properly administers plans pursuant to the terms of those plans.

On these grounds, the panel reversed the district court’s judgment that UBH wrongfully denied benefits to the named plaintiffs based upon the court’s finding that the plan guidelines impermissibly deviated from GASC. Furthermore, the panel held that the district court should not have excused unnamed class members from demonstrating compliance with the plans’ administrative review exhaustion requirement because doing so conflicted with the written terms of the plan.

Wit v. UBH »