A couple of days ago the U.S. Court of Appeals for the Fourth Circuit issued an opinion, Carolina Care Plan Inc. v. McKenzie, 2006 U.S. App. LEXIS 26217 (4th Cir.), with something for folks on both ends of the spectrum of ERISA interests to cheer about. The case involved Carolyn McKenzie’s need for cochlear implants. Her health insurer denied coverage for the implants and McKenzie appealed. The trial court ruled in McKenzie’s favor on the basis that the language of the insurance policy was ambiguous about whether cost of the implants was covered or excluded. Following well established principles of contract law, and especially law as it has been developed in every state in the country relating to insurance policies, the trial court relied on the doctrine of contra proferentem to interpret ambiguity in the policy in favor of coverage and against the insurer's ability to deny the claim. Finally, the trial court awarded attorney fees to McKenzie under ERISA’s attorney fee provision, 29 U.S.C. §1132(g), which states that “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” The insurer appealed to the Fourth Circuit. That court affirmed the trial court’s decision on coverage for the cochlear implants. The decision contains a thorough walk through for why the insurer acted in an arbitrary and capricious manner in denying coverage. It provides a detailed and cogent analysis in some of the best language I’ve seen for the need to interpret ambiguous insurance policy language in favor of coverage even when the court is reviewing an insurer’s actions under an arbitrary and capricious standard of review. Contra proferentem is a favorite topic of mine and my earlier thoughts about it are here. So far, so great! But then the decision takes a turn for the worse. It reverses the trial court’s award of attorney fees and establishes a very difficult to prove standard for prevailing plaintiffs to obtain reimbursement for attorney fees. The ruling basically requires a showing of bad faith on the part of the losing party before a prevailing plaintiff in the Fourth Circuit will be able to recover the costs of bringing a meritorious suit from an insurer or ERISA plan. That is simply awful for consumers. I’ll explain more thoroughly the dynamics of why this is so bad in a later post. For another perspective on the case, take a look at Roy Harmon’s blog entry at Health Plan Law.
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