Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-01087/USCOURTS-cand-3_05-cv-01087-2/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1001 E.R.I.S.A.: Employee Retirement

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

VICKI D. GORGONE,

Plaintiff,

 v.

THE GUARDIAN LIFE INSURANCE

COMPANY OF AMERICA,

Defendant. /

No. C 05-01087 SI

ORDER RE: CROSS MOTIONS FOR

SUMMARY JUDGMENT

On June 30, 2006, the Court heard oral argument on the parties’ cross motions for summary

judgment. After careful consideration of the parties’ arguments and the record in this case, the Court

hereby GRANTS in part and DENIES in part defendant’s motion and DENIES plaintiff’s motion. As

set forth below, the Court concludes that defendant did not abuse its discretion when it denied plaintiff’s

claim because her medical insurance plan excludes coverage for custodial care. However, the Court also

finds that plaintiff is not required to reimburse defendant for the first month of benefits paid because

such payment was made as an administrative exception and not pursuant to the contractual terms of the

insurance plan.

BACKGROUND

I. The Plan

Defendant Guardian Life Insurance Company of America (“Guardian”) provides medical

insurance to plaintiff Vicki Gorgone (“Gorgone”). A.R. at G 097-183. The policy was issued under a

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1

 Defendant objects to the declarations of Vicki Gorgone and her attorney, Kristin Jenny, on two

primary grounds: (1) the declarations fall outside the record and hence are outside the scope of an

ERISA action; and (2) the declarations violate Federal Rule of Evidence 701, which limits lay witnesses

to testimony regarding their own rational perceptions. In an ERISA case, evidence outside the record

may be considered when determining whether the standard of review is abuse of discretion or de novo. See Kearney v. Standard Insurance Co., 175 F.3d 1084, 1090-91 (9th Cir. 1998). Defendant provides

no support for its objection under Federal Rule of Evidence 701. This Court sees no reason to exclude

plaintiff’s declaration, for her testimony does not contradict the record and is not expert in nature.

Accordingly, the Court OVERRULES defendant’s objection to the Gorgone declaration. The Court

SUSTAINS defendant’s objection to the Jenny declaration because the Court DENIES plaintiff’s request

for attorney’s fees and accordingly does not require analysis of the Jenny declaration regarding such

fees.

2

 Emphasis is found in the original. Italicized terms are specifically defined in the glossary.

Instructions located at the beginning of the glossary direct the insured to take note that all italicized

terms in the Plan have a corresponding definition in the glossary.

2

plan established by her former employer, SuperGen, Inc., but Gorgone elected to continue coverage

under COBRA after leaving SuperGen. The insurance plan also covers her daughter and dependent,

Julia Gorgone. Gorgone Decl. ¶ 2.1

 Gorgone’s Guardian insurance plan (“Plan”) provides secondary

medical coverage because the Gorgone family’s primary medical insurer is Aetna. A.R. at G 191. The

Plan only serves as coverage for medical expenses not paid for by Aetna but still covered by the terms

of the Plan. A.R. at G 168.

The Plan’s explanation of benefits begins with “Major Medical Highlights,” which are identified

as a “quick guide . . . [b]ut it’s not a complete description of [the] Major Medical plan.” A.R. at G 121.2

The Plan instructs the insured to “read the following pages carefully for a complete explanation of what

[Guardian will] pay, limit and exclude.” A.R. at G 121. 

The Major Medical Highlights outline the costs generally imposed on the insured. The yearly

deductible for each covered person is $250. For charges not from a doctor or hospital, the insured

contributes a co-payment of 20% until the yearly out-of-pocket cap of $1,250 is reached. At that time,

Guardian covers all the remaining expenses with an unlimited payment limit for most sicknesses. A.R.

at G 121.

Mental and nervous conditions are covered with special limitations and hence do not follow the

benefits structure outlined in the Major Medical Highlights. The Plan states, 

We limit what we pay for the treatment of mental and nervous conditions, alcohol and

drug abuse. We include a sickness under this provision if it manifests symptoms which

are primarily mental or nervous, regardless of the underlying physical cause.

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3

 The Guardian insurance plan’s booklet defines Joint Commission as “the Joint Commission on

the Accreditation of Health Care Facilities” in its glossary. A.R. at G 178. JCAHO is an acronym for

Joint Commission on Accreditation of Healthcare Organizations. 

3

Inpatient coverage: You or a covered dependent may receive such treatment as an

inpatient in a hospital, residential treatment facility, or in a mental health or alcohol or

drug abuse center.

. . .

Lifetime payment limit: The benefits . . . are subject to a payment limit of $50,000 during

the covered person’s lifetime.

We don’t pay for custodial care, education, or training.

A.R. at G 141-2. The Plan provides covered benefits for the first thirty days of inpatient treatment for

a mental condition and thereafter pays 50% of covered expenses. A.R. at G 142.

The Plan defines the following relevant terms in the glossary: A.R. at G 173.

Residential Treatment Facility means a facility which provides 24 hour treatment for

people with drug abuse, alcohol abuse or mental health problems on an inpatient basis.

. . . We’ll recognize a residential treatment facility if it’s accredited for its stated purpose

by the Joint Commission,

3

 and carries out its stated purpose in compliance with all

relevant state and local laws. A.R. at G 179.

Custodial Care means any service or supply, including room and board, which: (a) is

furnished mainly to help a person meet his routine daily needs; and (b) can be furnished

by someone who has no professional health care training or skills. Even if you or a

covered dependent are in a . . . recognized facility, we don’t pay for care if it is mainly

custodial. A.R. at G 175.

Covered Charges are reasonable charges for the types of services and supplies

described in the “Covered Charges” and “Charges Covered with Special Limitations”

section of this plan’s Major Medical Expense Insurance provisions . . . . The services

and supplies must be: (a) furnished or ordered by a recognized health care provider; (b)

medically necessary to diagnose or treat a sickness or injury; (c) accepted by a

professional medical society in the United States as beneficial for the control or cure of

the sickness or injury being treated; and (d) furnished within the framework of generally

accepted methods of medical management currently used in the United States. . . . Read

the entire plan to find out what we limit or exclude. A.R. at G 174.

II. Enrollment at Sorenson Ranch School and Subsequent Denial of Claim

 In August 2002, Gorgone planned to enroll her daughter Julia in Sorenson Ranch School and

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4

 Julia was initially diagnosed as bipolar, but a subsequent diagnosis ruled out bipolar disorder

and labeled Julia as suffering from borderline personality disorder. A.R. at G 265. In addition to

treatment for her mental condition, Gorgone also sought treatment at Sorenson for Julia’s academic

underachievement, defiance to authority, drug use, and poor family relations. A.R. at G 020-24.

5

 Defendant’s opposition contends that the aforementioned disclaimer is heard prior to speaking

with a Guardian representative over the phone. However, there is no evidence in the record of the

disclaimer. Plaintiff’s papers make no mention of the disclaimer, and plaintiff did not file a reply to

defendant’s opposition.

6

 The Court notes that the record contains discrepancies regarding Julia’s start date at Sorenson.

Most of the documents identify August 23, 2002, as the start date. However, a few documents,

including a letter from Sorenson, identify September 24, 2002, as the start date. A.R. at G 012 & 018.

In any event, this minor factual discrepancy is irrelevant to the Court’s analysis. 

4

Residential Treatment Center (“Sorenson”) in Utah for treatment of Julia’s mental condition.4 A.R. at

G 265. On August 22, 2002, Gorgone called Guardian to clarify her benefits and to determine if Julia’s

stay at Sorenson would be covered by the Plan and relatedly whether pre-certification was necessary.

Following a disclaimer stating that the Plan’s coverage is controlled by the actual terms of the Plan

rather than the oral explanation of those benefits,5

 Gorgone informed the Guardian representative of

Julia’s diagnosis and of the fact Sorenson was a JCAHO approved in-patient residential facility. The

Guardian representative informed Gorgone that pre-certification of a residential facility was not

necessary, and the representative reviewed the greatest monetary contribution for which Gorgone would

be responsible. Because Gorgone had already met the $250 yearly deductible requirement for Julia,

the Guardian representative informed her that she would be responsible for 20% of the costs associated

with the residential treatment facility, with a cap on Gorgone’s out-of-pocket fees at $1000. The

representative informed Gorgone that once she had contributed her maximum out-of-pocket fees,

Guardian would cover the remaining costs with a lifetime maximum for mental health benefits set at

$50,000. A.R. at G 265. See Gorgone Decl., Ex. A at 1-3. 

On August 23, 2002, Gorgone enrolled then fifteen-year-old Julia in Sorenson.6 A.R. at G 024.

 Julia was enrolled until July 2003 when she returned home to California. At Sorenson, Julia received

quarterly individual counseling, monthly psychotherapy, weekly group therapy, and daily milieu

therapy. A.R. at G 018 & 022.

On September 3, 2002, Gorgone submitted the first Sorenson invoice to Guardian for

reimbursement. A.R. at G 239. Each month, Gorgone paid out-of-pocket for Julia’s expenses at

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7

 Guardian’s first payment of benefits on January 27, 2003, was for $15,813.64. A.R. at G 220

& 221. In total, Guardian has reimbursed $22,186.19 to Gorgone. Gorgone Decl. ¶ 9.

5

Sorenson and promptly submitted a copy of the invoice to Guardian. Gorgone Decl. ¶ 8. On December

6, 2002, Mental Health Case Management, an independent organization authorized by Guardian to

review claims, determined that the services offered by Sorenson for Julia were not a covered benefit

because the services were custodial in nature and did not correspond with the Plan’s definition of

inpatient or residential care. A.R. at G 203-4. On December 11, 2002, Guardian denied coverage of

the expenses because Sorenson did not have the proper license and provided only custodial care. A.R.

at G 240.

On December 19, 2002, Andrea Fuller, a marriage and family therapist at Sorenson, sent a letter

to Guardian stating that the facility is a licensed residential health care facility and detailing Julia’s

treatment. A.R at G 240. On January 8, 2003, Gorgone sent a complaint detailing the history of her

Sorenson claims made to Guardian to the California Insurance Commissioner. A.R. at G 217-19. 

On January 23, 2003, Guardian responded to Gorgone’s concerns regarding the denial of

benefits. Upon reviewing the audio recording of the August 22, 2002, phone call, Guardian agreed that

Gorgone might have been misled because her benefits were not clearly explained to her. In light of this

finding, Guardian made an administrative decision to cover Julia’s Sorenson expenses from August 23,

2002, through February 28, 2003, for a total of $22,186.19.7

 Guardian emphasized that the payment of

benefits was an exception, and that as of March 1, 2003, charges incurred at Sorenson would be denied

based on the custodial care exclusion. At that time, Guardian also provided Gorgone with the definition

of residential treatment facility found in the Plan. A.R. at G 220-21.

On February 7, 2003, Gorgone disputed Guardian’s denial on the ground that Sorenson is a

residential treatment facility and hence Guardian should provide coverage for the duration of Julia’s

treatment. Additionally, Gorgone provided evidence of Sorenson’s Utah license to provide residential

treatment and Sorenson’s JCAHO accreditation. A.R. at G 224-25. On February 19, 2003, Guardian

reasserted that the denial of benefits was proper because the nature of the care provided by Sorenson

was custodial and thus not covered by Guardian. A.R. at G 228.

On May 20, 2003, an attorney representing Gorgone disputed the denial of her claim after

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8

 After Guardian provided benefits for August 23, 2002, to February 28, 2003, Aetna, Gorgone’s

primary provider, provided benefits for Julia’s expenses for the first 30 days of her stay at Sorenson

(August 23 to September 23, 2002). Guardian seeks reimbursement of its payments for August 23

through September 23, 2002, pursuant to a Plan provision stating that the primary provider pays benefits

first and Guardian as the secondary provider pays the remaining covered benefits. A.R. at G 169.

6

February 28, 2003. A.R. at G 233-41. Subsequently, Guardian took Gorgone’s denial under further

review. On June 17, 2003, Guardian requested from Sorenson Julia’s medical records (including

physician and treatment notes) and an itemization of all billed charges in order to substantiate medical

necessity. A.R. at G 016. 

Upon receipt of the medical records in September 2003, an independent psychiatrist reviewed

Julia’s records. On October 14, 2003, Dr. Kruszewski found that Sorenson was not treating Julia in

conjunction with the requirements of a residential treatment facility. His report stated that Julia was

treated on an out-patient basis for behavioral issues, and that she received school-based programming

at Sorenson. A.R. at G 012-4. Residential treatment coverage requires twenty-four hour in-patient

treatment that does not primarily provide custodial care. A.R at G 175 & 179.

Gorgone made monthly payments to Sorenson totaling $45,286. Guardian has paid $22,186.19

to Gorgone for reimbursement of benefits. Gorgone Decl. ¶¶ 8 & 9. Gorgone now seeks the remaining

total of unreimbursed expenses related to Julia’s stay at Sorenson from March 1, 2003, to July 31, 2006,

for a total of $21,590. Conversely, Guardian seeks repayment of thirty-days of benefits of an

undisclosed amount received by Gorgone for the same treatment period paid by both Aetna and

Guardian.8

LEGAL STANDARD

The Federal Rules of Civil Procedure provide for summary adjudication when "the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment

as a matter of law." Fed. R. Civ. P. 56(c).

In judging evidence at the summary judgment stage, the Court does not make credibility

determinations or weigh conflicting evidence, and draws all inferences in the light most favorable to the

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nonmoving party. See T.W. Elec. Service, Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630-31

(9th Cir. 1987) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986));

Ting v. United States, 927 F.2d 1504, 1509 (9th Cir. 1991). 

The evidence the parties present must be admissible. Fed. R. Civ. P. 56(e). In an ERISA case

in which the court must review the administrator’s decision, the administrative record serves as the

primary evidence to be evaluated. Only if a de novo standard of review, rather than an abuse of

discretion standard, is applied, may additional evidence be presented before the court. Even so,

broadening the scope of admissible evidence for review beyond the administrative record should only

be permitted if necessary. See Kearney v. Standard Insurance Co., 175 F.3d 1084, 1090-1 (9th Cir.

1998). 

DISCUSSION

I. Standard of Review

The threshold issue is whether this Court reviews the benefit denial for abuse of discretion or

de novo. The Supreme Court generally directs the application of the abuse of discretion standard where

the benefit plan grants “the administrator or fiduciary discretionary authority to determine the eligibility

benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115

(1989). The Plan grants Guardian discretionary authority as the Plan’s fiduciary. A.R. at G 182.

However, even where a plan grants the administrator discretionary authority, the Court will apply

a de novo standard if the administrator has an actual serious conflict of interest. In determining if a

serious conflict of interest exists breaching the fiduciary’s obligations, Atwood v. Newmont Gold

Company outlines a burden-shifting process: the beneficiary must initially provide evidence illustrating

a conflict of interest, thus creating a rebuttable presumption from which the burden shifts to the

fiduciary to produce evidence supporting that the conflict of interest did not actually affect the benefits

denial decision. See Atwood, 45 F.3d 1317, 1323 (9th Cir. 1995); see also Regula v. Delta Family-Care

Survivorship Plan, 266 F.3d 1130, 1145 (9th Cir. 2001), vacated on other grounds, 539 U.S. 901 (2003).

 Where the fiduciary serves as both the administrator and the funding source, an apparent conflict of

interest is established which shifts the burden to the fiduciary. See Regula, 266 F.3d at 1145. If the

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 Although the Court applies an abuse of discretion standard, the Court would reach the same

result under de novo review.

8

administrator fails to carry its burden and the Court determines a serious conflict exists, the Court must

review the benefits decision de novo, rather than for abuse of discretion. See Tremain v. Bell Indus., Inc.,

196 F.3d 970, 976 (9th Cir. 1999). 

Here, Guardian has discretionary authority as the plan administrator and is the funding source,

creating a presumption of conflict. Plaintiff contends that an actual conflict exits because Guardian

provided inconsistent explanations for her benefits denial. The Court is not persuaded and concludes

that there is no actual conflict of interest. Contrary to plaintiff’s assertions, defendant consistently

denied coverage based upon the Plan’s exclusion for custodial care. The Explanation of Benefits

provided two grounds for denial: a residential treatment facility must be (1) licensed and (2) acting

within the scope of that license. A.R. at G 087, 089, 091, 093, 095 & 250. Upon verifying that

Sorenson was licensed, Guardian’s continued to deny benefits on the basis that Sorenson was not

operating within the scope of its residential treatment facility license, and instead provided primarily

custodial care. Although the telephone call’s benefits explanation was not the same as the subsequent

denials, the Guardian representative simply made a mistake when interpreting Gorgone’s benefits, and

Guardian remedied that misinformation by providing uncovered benefits for six months. Accordingly,

the Court concludes that the proper standard of review is abuse of discretion.

II. Guardian Did Not Abuse Its Discretion

An ERISA administrator exercises an abuse of discretion when the decision is made without

explanations, conflicts with the plain language of the plan’s terms, or is based on a clearly erroneous

finding of fact. See Atwood, 45 F.3d at 1323-24. If the fiduciary’s decision is reasonable, the decision

must not be disrupted. See Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412, 1417 (9th Cir. 1991).

In applying this standard, the Court concludes that Guardian did not abuse its discretion when denying

benefits for the final months of Julia’s stay at Sorenson.9

 

Under the terms of the Plan, sicknesses that manifest mental or nervous symptoms, regardless

of the cause, are subject to the special limited coverage provided for mental and nervous conditions.

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10 Guardian authorized an additional review of the claims by an outside independent Boardcertified psychiatrist, Dr. Kruszewski. His report is uncontested.

9

A.R. at G 178. Julia’s diagnosis and behavioral issues resulted in mental and nervous symptoms rather

than physical symptoms, and thus the Plan’s terms under mental and nervous conditions govern the

benefit coverage of treatment of these issues. The Plan covers care in a 24-hour in-patient licensed

residential treatment facility, and excludes primarily custodial care, education, or training. A.R. at G

142 & 179.

The Court finds that Guardian’s benefit denial does not contradict the Plan’s terms. In the Plan’s

operative clauses and glossary, custodial care is clearly designated as an uncovered expense. A.R. at

G 142. The care Julia received at Sorenson was primarily custodial rather than in-patient. According

to her medical records, her psychiatric sessions were conducted off-site monthly. A.R. at G G014.

Julia’s clinical record and a June 28, 2003, letter drafted by the marriage-and-family therapist at

Sorenson confirm that a licensed therapist counseled Julia weekly, with unlicensed counselors

providing supplemental treatment. A.R. at G 018 & 022. Julia’s treatment team did not include a

physician or registered nurse. A.R. at G 012. Dr. Kruszewski’s independent review of Julia’s medical

records from Sorenson found that the medicine administration records were substandard, and lay

personnel administered the medicine.10 A.R. at G G012-14. Dr. Kruszewski identified Sorenson’s

services as school-based programming with outpatient treatment for behavioral issues. Id. 

The Plan clearly limits coverage for mental and nervous conditions and expressly denies

coverage for facilities providing custodial care. Sorenson provided custodial care of Julia because the

therapy provided by licenced professionals was a secondary service. Sorenson’s primary function was

to provide school-based programming while caring for Julia in the absence of her parents. Id.

Furthermore, an explanation which mirrors the Plan’s terms accompanies each written benefits denial.

A.R. at G 006-07, 086- 95, 203, 207, 209, 221, 227-29, 250 & 253. Guardian did not abuse its

discretion because the denials do not contradict the Plan’s terms and it consistently provided

explanations detailing the rationale for the benefits denial.

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III. Gorgone Is Not Required to Reimburse Guardian

Guardian seeks reimbursement from Gorgone for the payments covering the first month of

Julia’s treatment on the ground that Aetna, Gorgone’s primary provider, also paid benefits covering this

time period. Guardian’s Plan states that a beneficiary’s “primary provider pays first. The secondary

plan then pays the remaining unpaid allowable expenses, but no plan pays more than it would have

without this provision.” A.R. at G 168. Guardian seeks reimbursement of the “double payment”

pursuant to this Plan’s provision. 

The Court concludes that because Guardian chose to provide benefits for Julia’s first month of

treatment as an administrative exception, rather than as a covered benefit of the Plan, the terms of the

Plan do not govern. Aetna’s payment for the same time period does not trigger the primary provider

clause of the Plan because, under Guardian’s own reasoning, Guardian’s original payment was outside

the scope of the Plan’s terms. Accordingly, Gorgone is not liable to Guardian for repayment of the

double benefits she received.

CONCLUSION

For the aforementioned reasons, the Court DENIES plaintiff’s motion for summary judgement.

(Docket No. 35). The Court GRANTS in part and DENIES in part defendant’s motion for summary

judgment. (Docket No. 31). The Court OVERRULES defendant’s objection to the Gorgone

declaration and SUSTAINS defendant’s objection to the Jenny declaration, (Docket No. 46), and

DENIES defendant’s request for judicial notice of unpublished cases. (Docket No. 45).

IT IS SO ORDERED.

Dated: July 17, 2006

 

SUSAN ILLSTON

United States District Judge

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