Court Opinion

ID: 9601060
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:35:57.935419+00
Date Added: 2024-06-11T09:48:48.957389
License: Public Domain

BEA, Circuit Judge,
concurring in part and dissenting in part:
Raymond Vaught crashed his motorcycle into a stopped vehicle. Vaught was driving drunk, extremely so — his blood alcohol content was three times Arizona’s legal limit. Vaught lived, but was hospital*634ized with serious injuries.1 Unfortunately for Vaught, his ERISA health plan (the “Plan”) contains an express exclusion of coverage for medical care expenses “relating to ... [djriving under the influence of alcohol or drugs” (the “DUI exclusion”). Accordingly, the Plan denied his claim, based on this DUI exclusion.
Vaught appealed the Plan’s denial to the Plan’s Claims Administrator. For such an appeal, the plain language of the Plan’s internal review procedures required Vaught to state in his written appeal “the reason” he thought the Claims Administrator should reconsider the denial of coverage. In his written appeal, Vaught gave seven procedural reasons he claimed the Claims Administrator should reconsider its denial of coverage.2 Not a single one of these seven reasons challenged the applicability of the DUI exclusion.
The Plan rejected Vaught’s appeal, and he brought an action in district court. There, for the first time, he raised the cockamamie claim that the DUI exclusion did not apply because the collision, not the alcohol, caused his injuries. Because he had never presented this “reason” to the Plan, as was required by his policy, the district court found he had not satisfied the policy requirement that he present “the reason” he thought the denial of coverage was in error first to the Plan.
The majority reads the policy as requiring only that a claimant give the Administrator any old reason he thinks benefits should not have been denied, whether or not later abandoned. The majority transforms the Plan’s requirement that Vaught state “the reason” he is challenging the denial of coverage into a requirement that can be satisfied if he states “a reason” or “any reason” for his challenge.
By transforming the Plan’s review requirement in this manner, however, the majority allows an ERISA claimant to engage in a court-sanctioned game of Texas Hold’Em against a Plan playing with all of its cards face up. An ERISA claimant challenging his plan’s denial of coverage can keep his cards close during the administrative appeals process, rolling the throw-aways, and waiting until his action in district court and after the Plan Administrator has stopped playing, to play his trump card: the real reason he challenges his plan’s denial of coverage. An action *635challenging an ERISA plan’s denial of benefits, however, should not be a game of poker. Indeed, a primary purpose of the exhaustion requirement is to give an ERISA fiduciary the first opportunity to interpret its plan and fully to consider its determination before a claimant seeks court intervention.3 Requiring an ERISA claimant to present to the ERISA fiduciary the reasons upon which he claims error for the Plan’s denial of coverage — at least where, as here, the policy itself contains this express requirement — is critical to effectuate this purpose.
Vaught, whether deliberately or not, failed to comply with his plan’s internal review procedures and failed to ask the district court to excuse him from that failure. Accordingly, I would affirm the district court’s order dismissing Vaught’s claim for failure to exhaust his administrative remedies.4
As the majority recognizes, Vaught was required first to exhaust his Plan’s internal review procedures before challenging the denial of coverage in district court. See Diaz v. United Agric. Employee Welfare Benefit Plan & Trust, 50 F.3d 1478, 1483 (9th Cir.1995) (“Quite early in ERISA’s history, we announced as the general rule governing ERISA claims that a claimant must avail himself or herself of a plan’s own internal review procedures before bringing suit in federal court.”). When determining whether a party has exhausted his plan’s internal review procedures, we look to the requirements of the plan’s procedures and determine whether the party has complied with them. See, e.g., Chappel v. Lab. Corp. of Am., 232 F.3d 719, 724 (9th Cir.2000).
The parties dispute whether Vaught exhausted the Plan’s internal review procedures. Thus, we are required to determine (1) what are the requirements of the Plan’s review procedures, and (2) whether Vaught complied with them. Our task when determining this issue is a fairly straightforward one.
The majority correctly notes we “interpret terms in ERISA insurance policies in an ordinary and popular sense as would a person of average intelligence and experience.” Babikian v. Paul Revere Life Ins. Co., 63 F.3d 837, 840 (9th Cir.1995) (citation omitted). Our analysis of the Plan’s requirements begins and ends with the Plan’s plain language. Indeed, the language could not be any more plain: the Explanation of Benefits form (“EOB”) states the claimant must, in writing, “clearly explain that you are appealing a claim denial and the reason why you think the Claims Administrator should reconsider your claim.” (emphases added).
The “ordinary and popular sense” of the Plan’s requirement the claimant “clearly explain ... the reason why you think the Claims Administrator should reconsider your claim” is that the claimant is required to tell the Claims Administrator why its initial denial of coverage was in error. Such a requirement makes sense. ERISA “requires covered benefit plans to provide administrative remedies for persons whose claims for benefits have been denied.” Amato, 618 F.2d at 567(citing 29 U.S.C. § 1133). ERISA requires plans to afford *636a reasonable opportunity for a “full and fair review” by the ERISA fiduciary of the denial of benefits. 29 U.S.C. § 1133.5 To be able to provide a full and fair review of the denial of Vaught’s claim, the Plan quite reasonably required Vaught to state in his appeal the issue or issues upon which he claims error. By failing to tell the Plan the reason he now claims the Plan erred in denying his claim, however, Vaught thwarted the Plan’s ability to provide such a review. In effect, he is “sandbagging” the Plan by submitting all sorts of “reasons,” save the real reason he held close until filing his complaint.
The reason Vaught thinks the Plan erred in denying his claim is that the alcohol exclusion does not apply to him. Specifically, he contends the alcohol exclusion does not apply because his “injuries were not ‘caused[,]’ either directly or indirectly, by alcohol. Rather, [Vaught’s] injuries were the direct result of and proximately caused by an automobile/motorcycle collision.”6 Vaught, however, never told the Claims Administrator this was the reason it should reconsider his claim.
Vaught submitted two appeals of the Plan’s denial. The first was his attorney’s February 19, 2004 letter, which listed the seven grounds for the appeal noted at footnote 2, supra. The majority aptly describes these seven grounds as “procedural,” since none of the grounds challenged the basis of the denial on the merits. Not a single one of the seven reasons gave the Plan notice that Vaught thought the alcohol exclusion did not apply to him, let alone inform the Plan the specific reason he thought the alcohol exclusion did not apply.
The Plan, through counsel, responded by letter on March 16, 2004. The letter spelled out again, in even clearer terms, the reason for the denial of Vaught’s claim: the “Plan does not cover any expenses incurred related to ‘driving under the influence of alcohol or drugs.... The specific reason for denial of coverage is driving under the influence of alcohol or drugs, your client having an indicated blood alcohol level of 0.261.’ ”7 The Plan responded, point by point, to each of the seven procedural challenges Vaught raised in his September 2004 appeal.8 Finally, the Plan, in an abundance of caution (“based on this apparently being the first formal notification”), gave Vaught another 180 days in which to file an appeal in accordance with the Plan’s procedures.
Yet, Vaught missed his second chance to do so. Vaught’s first attorney responded to the Plan’s March 16, 2004 letter with a letter of his own on March 29, 2004, asking several questions9 and requesting a list of *637documents the Plan Administrator relied upon to reach its determination. The letter once again failed to state “the reason” Vaught thought the Plan erred in denying his claim; i.e., the alcohol exclusion does not apply to Vaught because his injuries were “caused” by the collision, not alcohol.
On September 2, 2004, represented by new counsel, Vaught filed his second appeal of the denial of benefits. Yet again, he failed to state “the reason” why he now thinks the Claims Administrator should have reconsidered his claim. The September 2, 2004 letter states it is an appeal, requests all documents relevant to the denial, and notes that “ERISA provides for imposition of substantial monetary penalties for the failure of a Plan Administrator to make timely disclosures as required by law.” Yet, nowhere in such appeal letter does Vaught’s attorney state a single reason he thinks the Plan erred when it denied Vaught’s claim. In neither of his appeals to the Plan did Vaught comply with the Plan’s express requirement he state “the reason” the Claims Administrator should reconsider his claim. In neither of his appeals did he take issue with the Plan’s determination the alcohol exclusion applied to him.
Vaught held his cards close until his action in district court. There, for the first time in the joint case management report, Vaught set forth the reason he thinks the Plan erred in denying benefits; i.e., the alcohol exclusion did not apply to him. By then, however, it was too late. He had failed to comply with the Plan’s internal review procedures, and failed to give the Plan the opportunity to consider the merits of his challenge. Having failed to do so, he is barred from bringing an action challenging the denial of coverage on this basis. See Diaz, 50 F.3d at 1483.
The majority, however, holds Vaught exhausted the Plan’s internal review procedures because Vaught’s February 19, 2004 appeal stated seven “procedural” reasons the Plan erred in denying coverage, although none of these purported procedural defects are related to the reason Vaught now challenges the denial, the applicability of the alcohol exclusion. In effect, the majority interprets the Plan’s requirement to state “the reason why” the Claims Administrator should reconsider the claim as a requirement the claimant state “a ” reason why or “any ” reason why. According to the majority, once Vaught stated a reason — any reason — he “effectively invoked the Plan’s internal review procedures.” I respectfully disagree. Under no “ordinary and popular sense” of the term does “the reason” mean “a reason” or “any reason.” See The Random House Dictionary of the English Language 1965(2d ed.1987) (the: “used, esp. before a noun, with a specifying or particularizing effect, as opposed to the indefinite or generalizing force of the indefinite article a or an.”).
The majority goes wrong in its definition of “the reason” by concentrating on the noun to the exclusion of the restrictive article. “The reason” does not include any “explanation or justification.” It may be a claimant has more than one reason for appealing the Plan’s decision, and I do not interpret the Plan’s requirement to limit a claimant to a singular reason to the exclusion of all other legitimate reasons.10 But *638when requiring “the reason,” the ordinary and popular meaning is certainly to include the main reason on which one relies. If there are two or more equally important, or at least substantial, reasons, they should be presented to the Claims Administrator, so the Plan has the first opportunity to evaluate, accept, or reject the contentions. “The reason” certainly does not mean “any reason but not necessarily the reason on which I intend to rely in court.”
If one were to recur to the “purpose” of the provision requiring the insured to state the reason he thinks the Plan’s denial erroneous, it clearly is to allow the Claims Administrator first to consider the basis upon which the insured claims he was improperly denied his claim. Exhaustion of the claimed bases of error should precede judicial action. Otherwise, we destroy the purpose of exhaustion and allow plaintiff to play bait and switch. Plaintiff could have laid out as a “reason” that the right to payment is a right guaranteed him as a right retained by the People under the Ninth Amendment to the United States Constitution. That would be “a” or “any reason.” But that would not engage the Claims Administrator to consider plaintiffs novel interpretation of the DUI exclusion: damages due to drinking are excluded only in the case of alcohol-induced cirrhosis of the liver, but not when the wasted motorcyclist wipes himself out.
It may be that a plan requirement that the claimant state the reason he challenges a benefit denial is unfair in certain circumstances; where, for example, the reason develops during the appeals process and the claimant could not have raised the reason earlier. If “the reason,” or reasons, a plaintiff claims in court that he was erroneously denied benefits was not put before the Claims Administrator, and there are equitable grounds for excusing that failure, the district must consider those equitable grounds. In such a circumstance, the district court may exercise its discretion to excuse the claimant from the exhaustion requirement. See Amato, 618 F.2d at 568 (“[T]here are occasions when a court is obliged to exercise its jurisdiction and is guilty of an abuse of discretion if it does not, the most familiar examples perhaps being when resort to the administrative route is futile or the remedy inadequate.”) (citation omitted).
This, however, is not such a case. Vaught never asked the district court to excuse his failure to raise in his administrative appeal the reason he now claims the Plan erred when it denied coverage based on the DUI exclusion. Had Vaught presented some evidence to the district court that he could not have challenged the applicability of the DUI exclusion in his initial appeal to the Claims'Administrator, this might be a different case.11 He did *639not, nor did he request the district court excuse him from the exhaustion requirement for any other reason.
Accordingly, I would hold that Vaught failed to exhaust his plan’s remedies, because he failed to comply with the Plan’s requirement he state “the reason” he thinks the Claims Administrator should have reconsidered his claim, namely, the alcohol exclusion did not apply to him.12 Thus, I would affirm the district court’s dismissal of Vaught’s claim challenging the Plan’s denial of benefits, and I dissent from the majority’s opinion reversing and remanding that claim.

. The driver of the car with which Vaught collided was not injured.

. The seven procedural reasons — lifted almost verbatim from 29 C.F.R. § 2560.503-1 with no earthly relation to the reality of Vaught's case and no support in the record — were:
1. The specific reason or reasons for the adverse benefit determination have not been provided;
2. References to the specific plan provisions on which the adverse benefit determination is based have not been provided;
3. No description of additional material or information necessary to complete the claim has been requested;
4. No description of the plan’s appeal procedures, including applicable time limits, plus a statement of the right to bring suit under § 502 of ERISA with respect to any adverse benefit determination has been provided;
5. No statement that the Vaughts are entitled to receive on request and free of charge, reasonable access to and copies of all documents, records and other information relevant to the claim has been provided;
6. No description of adverse benefit determination based upon an internal rule, guideline, protocol, or similar criteria, if so based, has been provided;
7. The sole description provided, "AM refer to the benefits booklet under exclusions and what the plan does not recover [sic] regarding motor vehicle related charges” is vague and ambiguous, fails to meet the requirements for a claim denial as outlined at page 37 of the "Flex Choice — Medical Benefit Summary Plan Description.”

. See Amato v. Bernard, 618 F.2d 559, 568 (9th Cir.1980) ("[A] primary reason for the exhaustion requirement, here as elsewhere, is that prior fully considered actions by pension plan trustees interpreting their plans and perhaps also further refining and defining the problem in given cases, may well assist the courts when they are called upon to resolve the controversies.”).

. I concur in the majority’s judgment affirming the dismissal of Vaught's claim for failure to disclose plan documents under 29 U.S.C. § 1132(c).

. By imposing this requirement, Congress sought “to help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned.” Amato, 618 F.2d at 567.

. This contention fails on the face of the policy. The policy does not exclude only expenses for injuries “proximately caused” by alcohol; it broadly excludes "all expenses incurred for services, supplies, medical care, or treatment relating to, arising out of, or given in connection with ... [d]riving under the influence of alcohol or drugs.”

. Arizona state law proscribes driving with a blood alcohol content of 0.08 parts alcohol/blood. Ariz.Rev.Stat. § 28 — 1381 (A)(2) (2003). Hence, Vaught was more than three times (300%) over the limit.

. The merits of the Plan’s responses to Vaught’s procedural contentions are not at issue on appeal, nor did Vaught challenge them in the district court.

. These included questions such as "whether the Plan would refuse to cover an individual *637driving under the 'influence' of drugs if the drugs were mis-prescribed by a Plan physician” — perhaps in preparation for that well-known DUI defense: "the bartender gave me the wrong drink!” — and how the Plan would prove Vaught received notice of the Plan's "driving under the influence” exclusion.

. Indeed, if an ERISA plan attempted to limit a claimant to presentation of a singular reason for his appeal although the claimant *638may have multiple legitimate reasons, I have no doubt a court would excuse compliance with the plan’s requirement and permit the claimant to raise the additional reasons in district court. See Amato, 618 F.2d at 568(stating a district court would abuse its discretion if it failed to excuse exhaustion where "resort to the administrative route is futile or the remedy inadequate."). Nor could a plan require a claimant to state any and all reasons in the initial appeal, on pain of never being able to raise other reasons before the district court, no matter what equitable grounds there may be for failure to comply with the requirement. See id. The point is that, where possible, the Plan must be given the first opportunity to consider the errors a plaintiff claims, before the district court gets involved.

. It may be that Vaught’s novel interpretation of the DUI exclusion clause had not occurred to him and his attorney until just before filing his district court action, because neither had achieved another 0.2618 blood alcohol level since the accident. However, I doubt that would be an acceptable reason for his earlier failure.

. Because we should affirm the dismissal for failure to exhaust the Plan’s internal review procedures, we should not reach the novel issue whether the judicially-created ERISA exhaustion requirement includes an "issue exhaustion” requirement independent of the requirements of a particular plan’s internal review procedures.