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Connecticut General Life Insurance Co. v. Humble Surgical Hospital, L.L.C.

United States Court of Appeals, Fifth Circuit

December 19, 2017


         Appeal from the United States District Court for the Southern District of Texas.

          Before BARKSDALE, DENNIS, and CLEMENT, Circuit Judges.


         We are tasked with deciding whether the district court erred when it granted judgment for Humble Surgical Hospital ("Humble") on its claims for damages against the Connecticut General Life Insurance Company and its parent-corporation, Cigna Health and Life Insurance Company, (collectively, "Cigna") under the Employee Retirement Income Security Act of 1974 (ERISA) §§ 502(a)(1)(B) and 502(a)(3). The district court failed to apply the required abuse of discretion analysis; other courts have upheld Cigna's interpretation of its insurance plans; and there was substantial evidence supporting Cigna's interpretation. Accordingly, we reverse the district court. Moreover, as Cigna is not a named plan administrator, we reverse the district court's award of ERISA penalties against Cigna. We vacate in part the district court's dismissal of Cigna's claims against Humble. Finally, we vacate the district court's award of attorneys' fees and remand for further consideration.

         Facts and Proceedings

         Cigna is a managed healthcare company that oversees both ERISA and welfare benefit plans, as well as private policies for health insurers. Humble is a five-bed, physician-owned hospital in Harris County, Texas, that is considered an "out-of-network" provider under Cigna insurance plans. Between 2010 and the commencement of this suit in 2016, it performed hundreds of non-emergency procedures on Cigna members.

         As part of its admissions process, Humble required patients to sign a form that included an irrevocable "Assignment of Benefits"-which made Humble the beneficiary of ERISA plans and non-ERISA contracts. The admissions form also included a personal guarantee that the patient would "pay . . . for all services and products administered to the patient." For each claim submitted to Cigna, Humble certified that it had previously acquired this assignment of benefits.

         For several months after Humble opened, Cigna processed Humble's claims without dispute, relying on two third-party repricing entities to negotiate "allowable" amounts and pricing agreements. Then in October 2010-after processing a $168, 980 charge for "a fairly noncomplex, outpatient surgical procedure"-Cigna began flagging Humble's claims and funneling them through its Special Investigations Unit. As part of its investigation, Cigna sent surveys to all of its members who had received treatment at Humble and had their claims paid by Cigna. On the basis of 113 members' responses, Cigna concluded that Humble was engaged in "fee-forgiving"-i.e., waiving patients' co-insurance or deductible fees. Cigna also concluded that Humble was intentionally inflating its prices to increase reimbursement fees.

         In 2011, Cigna forwarded Humble an inquiry, seeking an explanation of Humble's collection policy regarding patient deductibles, co-pays, and co-insurances. It further requested the patient ledgers of ten specific patients. In response, Humble assured Cigna that "it is the policy of [Humble] to hold its patients responsible for the full payment of their respective out-of-network responsibilities and obligations for services rendered at our facility." It also provided Cigna with a summary chart containing "collection notes" for each of the specified accounts. Nevertheless, Cigna continued to suspect Humble was engaged in fee-forgiving, and refused to process Humble's claims without proof that the member had fully paid his co-pay or co-insurance. If a member paid less than his full co-pay or co-insurance, Cigna would pay what it deemed to be its "proportionate share, " in accordance with Cigna's own interpretation of the exclusionary language contained in its self-funded plans.[1]

         Cigna sued Humble, seeking over $5 million in alleged overpayments. Humble then counterclaimed under ERISA and Texas state common law, alleging among other things: (1) underpayment, nonpayment, or delayed payment of 595 claims; (2) breach of fiduciary duty; and (3) failure to comply with requests for plan documents.

         After a nine-day bifurcated bench trial, Humble moved for Judgment on Partial Findings, which the district court granted. The district court concluded that Cigna's claims and defenses failed as a matter of law. The district court awarded Humble $11, 392, 273 in damages and $2, 299, 000 in penalties.

         Both parties then moved for attorneys' fees. The district court denied Cigna's motion and awarded Humble $2, 743, 790 in attorneys' fees. Cigna timely appealed.

         Standard of Review

         "On appeal from a bench trial, this court review[s] the factual findings of the trial court for clear error and conclusions of law de novo." George v. Reliance Standard Life Ins. Co., 776 F.3d 349, 352 (5th Cir. 2015) (internal quotation marks omitted) (alterations in original). "Under de novo review, we apply the same standard to the Plan Administrator's decision as did the district court." Id. (quoting Holland v. Int'l Paper Co. Ret. Plan, 576 F.3d 240, 246 (5th Cir. 2009)). "[W]hen an administrator has discretionary authority with respect to the decision at issue, the standard of review should be one of abuse of discretion." Vega v. Nat'l Life Ins. Servs., Inc., 188 F.3d 287, 295 (5th Cir. 1999) (en banc), overruled on other grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008).


         I. Cigna's Exclusionary Language Defense Cigna contends that "[t]he district court's judgment that Cigna underpaid Humble's claims should be reversed." Cigna does not dispute that it consistently refused to pay the billed charges on hundreds of its member accounts for medical procedures performed at Humble. Instead, Cigna raised its interpretation of the exclusionary language in its plans as an affirmative defense. ...

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