Tenth Circuit Finds UnitedHealthcare Abused Its Discretion by Failing to Consider Independent Ground for Coverage for Residential Treatment Benefits

In Ian C. v. UnitedHealthcare Ins. Co., No. 22-4082, __F.4th__, 2023 WL 8408199 (10th Cir. Dec. 5, 2023), the Tenth Circuit determined that UnitedHealthcare Insurance Company’s (United) denial of residential treatment to a teenager, A.C., who suffered from mental health and substance-abuse problems was an abuse of discretion under ERISA because United failed to address his substance abuse as an independent ground for coverage. The court reversed the district court’s finding that United’s decision was not arbitrary and capricious and remanded the case for further consideration.

A.C. was covered under an employer-sponsored benefit plan insured by United as a dependent of Plaintiff Ian C. At the age of 7, A.C. was diagnosed with ADHD and prescribed medication. Over the years, he struggled with schoolwork and in his relationship with his parents. By the age of 17, he was habitually experimenting with drugs and drinking alcohol almost daily. Following an overdose, a growing dangerous pattern of behavior, and a persistent resistance to participating in therapy, his treating psychologist recommended to his parents that A.C. be admitted to an inpatient wilderness program. He started at one program but because of his cannabis use disorder and alcohol use disorder, a psychologist at the program recommended that he continue treatment at an inpatient facility with access to substance-use treatment. He was then admitted to Catalyst Residential Treatment. United makes claim determinations using guidelines such as the Mental Health Residential Treatment Center (Mental Health Guidelines) and guidelines for Substance-Related Disorders (Substance Abuse Guidelines). Initially, United paid for about two weeks of treatment at Catalyst but then denied further residential treatment benefits on the basis that A.C. could be effectively treated at a lower level of care. Plaintiff appealed this decision twice. The level one denial was based on the opinion of a reviewing doctor who believed that A.C. made progress and no longer needed residential treatment. The doctor also opined that A.C. did not have serious withdrawal or post-acute withdrawal symptoms that would justify continued coverage. The peer reviewer on the level two appeal did not address A.C.’s claims regarding substance abuse issues and only focused on the Mental Health Guidelines. Based on the reviewer’s opinion that A.C.’s mood was stable and his remaining symptoms were “parental-child conflict” that could be treated in a less restrictive setting, United denied the second appeal and Plaintiff filed suit seeking recovery of benefits under ERISA.

First, the court addressed Plaintiff’s argument that notwithstanding discretionary language in the plan, the standard of review should be de novo based on United’s violations of the Department of Labor’s ERISA regulations. Given past Supreme Court decisions on the standard of review for ERISA claims, “[n]othing in Ian C.’s brief convinces [the court] to stir the pot.” The court rejected the argument that the DOL regulations can dictate the judicial standard of review.

Applying arbitrary-and-capricious review, the court noted that it focuses on the two denial letters that United sent to Ian C. Plaintiff’s main argument on appeal was that United disregarded A.C.’s substance abuse as an independent ground for coverage. The court noted that in Ian C.’s appeal, he criticized the reviewing doctor’s failure to consider the Substance Abuse Guidelines when A.C. was “dually diagnosed.” Ian C. included significant evidence for the second reviewer to consider with his appeal, including the Substance Abuse Guidelines. But the reviewing doctor on the second appeal did not mention any of the evidence or arguments that Ian C. raised and only cited to the Mental Health Guidelines. The court found that “[t]his record is replete with evidence of A.C.’s substance abuse and the treatment he received for it at Catalyst” and found “[o]n this record, United was not justified in shutting its eyes to the possibility that A.C. was entitled to benefits based on his substance abuse.” The court explained that where an administrator ignores an independent ground for coverage, and there is little evidence to refute the claimant’s theory, the decision fails arbitrary-and-capricious review. The reviewing doctor was required to address Ian C.’s arguments and by failing to take into account all information submitted by the claimant in violation of ERISA, United denied Ian C. a full and fair review.

The court quickly disposed of United’s remaining arguments, including that the substance abuse had to be a “primary driver” for A.C.’s admission to Catalyst. The court found the “primary driver” argument to be “an invention of creative lawyering.”