Improper Discretion Used in TPA's Denial of Benefits

>The US District Court for the District of Oregon found the TPA abused its discretionary authority when reading conflict of interest abuses in the plan documents.   The court held it would have upheld the denial had the standard of review been the more deferential abuse of discretion standard, according to an EBIA report.

In the case, a former employee, who participated in a continuing health insurance coverage plan, applied for benefits after he was injured while lifting a heavy object used in a business that he operated out of his home.   The health plan initially paid the claim, but the employer later contacted the TPA about its suspicion that the injuries were martial-arts-related and, therefore, excluded from coverage under the plan’s “dangerous sports” exclusion.

The TPA, without reviewing the participant’s medical records, determined the injury was excluded from coverage and sought reimbursement of payments made to providers.   The employee then contacted the TPA to explain that the injury was not related to any “dangerous sports,” at which time the TPA reviewed his medical records.   After reviewing the former worker’s records, the TPA denied coverage again, asserting the injury occurred during the course of employment and was excluded from coverage under the plan.

The employee sued the plan, where the court found that the inconsistent positions and denial of the claim without proper investigation, combined with the fact that the plan was partially self-funded, were evidence of a conflict of interest that required heightened scrutiny.   Further, the court went on to determine that the health plan’s exclusion for injuries incurred in the course of employment did not apply to the injuries sustained by the former employee when he lifted a piece of equipment used in his home business. Because the activity occurred outside his regular work hours, the employee had been moving the object for personal rather than business purposes.

The court upheld the original award of benefits.

The case is Olcottv. Vision Plastics Inc. Health Care Plan , District of Oregon, 2004U.S. Dist. LEXIS 14010.