Successful Motion in Breach of Contract Suit

January 1, 2005

Nancy N. Potter and Casey Yim successfully represented Kaiser Foundation Health Plan which was sued under the Employee Retirement Income Security Act (ERISA) for declining to refer a health plan member to an out-of-plan eating disorder clinic. 

Plaintiff sought treatment for bulimia nervosa from a non-Kaiser facility.  Plaintiff then presented a claim for reimbursement to Kaiser under their health plan.

Kaiser denied the claim because Kaiser offered a range of treatments for eating disorders, including the services sought by the plaintiff.  Plaintiff utilized the appeal process within Kaiser, but was denied reimbursement for the cost of the in-patient treatment. Plaintiff then sued in U.S. District Court, under ERISA, seeking damages for reimbursement of their medical expenses, in the amount of $45,000, plus attorney’s fees.

The parties filed cross-motions for summary judgment. The key issue was the proper standard of review of Kaiser’s decision denying the plaintiffs’ claim - “abuse of discretion” or “de novo”.  Plaintiff contended that the standard should be “de novo” because Kaiser’s appeal board was inherently biased and had a conflict of interest in considering the reimbursement claim.

The defense successfully argued that the applicable case law  (Barnett v . Kaiser Foundation Health Plan, Inc. 32 F.3d 413, 415 (9th Cir. 1994)) established that because Kaiser was a not-for-profit entity, there could be no conflict of interest.  Thus, the appropriate standard of review of Kaiser’s decision was “abuse of discretion”, not  “de novo”.

The judge agreed, finding that Kaiser had not abused its discretion in denying reimbursement, and granted Kaiser’s motion for summary judgment, and denied plaintiffs’ motion.