Plaintiffs Mark Fritcher (“Fritcher”) and Country Trust Bank (“the Bank”) sued Defendant Health Care Service Corporation (“HCSC”) for failing to pay benefits that the plaintiffs alleged were due under Fritcher’s employee benefit plan, which HCSC administered. The district court granted the plaintiffs’ motion for summary judgment, and HCSC appeals. We affirm.
I. FACTUAL BACKGROUND
Fritcher works for Mitsubishi Motor Manufacturing of America (“MMMA”) and is a participant in the MMMA employee benefit plan (“the Plan”). The parties agree that the Plan is an employee welfare
In 1994, the Plan began assuming the responsibility for Lucas’ primary health coverage, and paid for an average of eighteen hours per day of in-home health care for Lucas. In a letter dated March 28, 1997, HCSC sent a letter to Fritcher notifying him that effective May 1 of that same year, the Plan would cover “a maximum of two hours per day” for Lucas’ care, as anything beyond that would be deemed to be “custodial care” and not “medically necessary” under the terms of the Plan. HCSC asserted that most of the in-home care Lucas was receiving did not qualify as “Skilled Nursing Services” under the Plan.
The term “Skilled Nursing Services” is defined under the “Definitions” section of the Health Care Service Plan document as “those services provided by a registered nurse (R.N.) or licensed practical nurse (L.P.N.) which require the technical skills and professional training of an R.N. or L.P.N.” The definition adds that “Skilled Nursing Service does not include Custodial Care Service.” “Custodial Care Service,” meanwhile, is defined under the Plan as “those services which do not require the technical skills or professional training or medical and/or nursing personnel in order to be safely and effectively performed.” Under the “Exclusions — • What Is Not Covered” section of the Plan, “Custodial Care Service” is specifically delineated as a type of service that is not “Medically Necessary” under the terms of the Plan.
HCSC’s determination to reduce benefits was based largely on the work of one Dr. Robert Fucik. Fucik, a part-time practicing endocrinologist, acknowledged at trial that he was not board-certified in any field, including endocrinology. Fucik, a twenty-year HCSC employee, determined after a review of the record that whatever “skilled nursing care” Lucas was receiving could be administered over the course of a one to two hour period. Fucik admitted that he made his determination without reference to Lucas’ need for skilled medical care throughout the day and not simply during a one to two hour period. (R. at 582.) Fucik also conceded that he made his decision without reference to the number of times a day Lucas had seizures, (R. at 587), which Lucas’ pediatrician noted as “frequent,” even up to twenty times per day. (Pl.’s Ex. 66.)
After receiving HCSC’s March 28, 1997 letter curtailing his son’s benefits, Fritcher took some action that apparently satisfied his obligation under the “Claim Review Procedure” outlined in the Plan. (Pl.’s Ex.
II. PROCEDURAL POSTURE
On June 26,1998, Fritcher and the Bank timely filed an action in federal district court under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq., seeking judicial review of the Plan administrator’s decision to deny benefits. In November 1999, the matter was tried in a bench trial before the Honorable Michael P. McCuskey, United States District Court Judge. Before rendering his opinion, Judge McCus-key recused himself in an order dated June 8, 2000 because of his own brewing conflict with a division of HCSC. (R. at 96.) The matter was thereupon reassigned to Magistrate Judge John A. Gorman of the Peoria District of the United States District Court for the Central District of Illinois.
In December 2000, the parties filed cross motions for summary judgment. On March 20, 2001, Magistrate Judge Gorman granted summary judgment in favor of the plaintiffs and against the defendant on the issue of liability. On November 15, 2001, the district court awarded damages to plaintiffs and against defendant in the amount of $841,142.08, awarded plaintiffs their attorney’s fees and costs in the amount of $112,286.22, and prejudgment interest in the amount of $56,170.11. HCSC filed a notice of appeal on November 30, 2001.
III. DISCUSSION
A. The Summary Judgment Grant
HCSC asks this court to reverse the district court’s grant of summary judgment in favor of the plaintiffs. A summary judgment motion must be granted if there is “no genuine issue as to any material fact.”
Celotex Corp. v. Catrett, 477
U.S. 317, 323,
B. The Administrator’s Decision
1.
The primary issue in this case is whether the magistrate judge applied the correct standard of review to the plan administrator’s decision to deny benefits. It is significant to note at the outset that this court’s opinion in
Herzberger v. Standard Insurance Co.,
The gravamen of HCSC’s argument is that the magistrate judge applied the wrong standard of review when analyzing HCSC’s interpretation of Plan language. Specifically, HCSC maintains that its interpretation, as the Plan’s “Claims Administrator,” of what is “medically necessary” under the Plan ought to have been examined under the deferential “arbitrary and capricious” standard. 4 HCSC objects to the magistrate judge’s use of the less deferential de novo standard. HCSC asserts that Plan language bestowing upon the Plan administrator the right to exercise “reasonable judgment” in determining whether services are medically necessary is a sufficient grant of “discretion” under the law of this circuit to trigger a milder standard of review.
We disagree. As this court held in Herzberger, an ERISA plan is “a special kind of contract,” in which there exists “a presumption of full judicial review at the behest of the [participant or beneficiary].” Id. at 330. Thus, this “presumption of plenary review is not rebutted by the plan’s stating merely that benefits will be paid only if the plan administrator determines they are due, or only if the applicant submits satisfactory proof of his entitlement to them.” Id. at 331. Such truisms do not “give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary.” Id. at 332. Without such notice of the employer’s intention “to reserve a broad, unchanneled discretion to deny claims,” id. at 333, the employee cannot make informed choices about his benefits, such as the decision as to whether he should supplement his ERISA plan with other forms of insurance. See id. at 331.
It is clear from the undisputed facts on the record that HCSC has failed to dispel the presumption against plenary review. The language that HCSC cites is simply not sufficient under Herzberger. HCSC first claims that the “Plan documents” bestow the requisite degree of discretion upon HCSC. HCSC points to the “Benefit Booklet,” a document which the Plan adopted and incorporated by reference that summarized benefits for the participants and beneficiaries. This booklet states that benefits will be provided for services only if they are, “in the reasonable judgment of the Claim Administrator, Medically Necessary.”
After a thorough review of the facts and the law, we hold that the phrase “in the reasonable judgment of the Claim Administrator” does not rise to the level articulated by the
Herzberger
court to rebut the presumption of plenary review.
5
HCSC also points to language in its “Administrative Services Agreement” (“ASA”) between HCSC and MMMA as evidence that HCSC enjoys “discretion” under the terms of the “Plan.” There are two problems with this argument. First, the language cited—“the Claim Administrator in its sole discretion reserves the right to pay any benefits that are payable under the terms of this Agreement directly to the Covered Employee or to the Provider of the service”—has nothing whatever to do with discretion in awarding benefits. It simply provides that HCSC can pay whomever it wishes in the first instance for services rendered. This court has expressly held that discretionary language appearing in a non-relevant passage of an ERISA plan “does not grant the administrator discretion to determine eligibility for benefits.”
Postma v. Paul Revere Life Ins. Co.,
The second problem with HCSC’s use of the ASA is that it is not a “plan document” for purposes of holding its terms against a plan participant or beneficiary.
6
See, e.g., Local 56, United Food & Comm. Workers Union v. Campbell Soup Co.,
2.
Having established that the standard of review by which we are required to examine HCSC’s benefit denial in this case is
de novo,
we now turn to the decision itself. The magistrate judge found that
We agree with the ultimate determination of the magistrate judge, but for different reasons than those he offered in his order. It is not clear from the magistrate judge’s March 20, 2001 order what impact the “Nursing and Advanced Practice Nursing Act, 225 Ill.Comp.Stat. 65/5-1 et seq.” has on Lucas’ care. The passages cited in the order (defining “practical nursing” and “registered professional nursing practice”) do not necessarily support the conclusion that Illinois law prohibits a non-licensed health care provider from taking care of Lucas, or that the care Lucas was receiving could be considered “skilled nursing services” under the terms of the Plan.
What is clear from the undisputed facts on the record, however, is that HCSC denied benefits despite its knowledge that Lucas needed “skilled medical care” under the terms of the Plan, that such care should have been covered under the Plan, and that Lucas’ need for such care was scattered throughout the day. Dr. Fucik, the HCSC employee who was largely responsible for the benefit reduction, admitted that the periodic monitoring of the oxygen content in Lucas’ bloodstream was a skilled service, (R. at 585), and that the periodic monitoring of Lucas’ breathing was a skilled service. (R. at 625.) He further admitted that his own notes reflected the fact that Lucas was receiving “a scattering of skilled services” that were “being provided during approximately 18 hours per daily nursing services.” (R. at 581; Dep.Ex. Fucik # 3). Dr. Fucik also admitted that he ignored the frequency of Lucas’ seizures when making his determination, (R. at 587), even though the nurses’ reports — the same ones that Dr. Fucik claimed to have reviewed while making his determination (R. at 541, 548) — showed that Lucas frequently had seizures. (Def.’s Ex. # 50.) HCSC obviously knew that for someone in Lucas’ condition, monitoring and controlling these seizures is critically important. (Pl.’s Ex. 12; Pl.’s Ex. 55A; Dep.Ex. Fucik # 7 at 3.) Based on these facts alone, and without having to examine Illinois law, HCSC’s decision to confine benefits to a 2-hour period is patently unreasonable.
See Govindarajan v. FMC Corp.,
C. Attorney’s Fees and Costs
HCSC argues that the district judge’s award of attorney’s fees and costs to the plaintiffs was erroneous. ERISA allows a court, in its discretion, to award “a reasonable attorney’s fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). We review such an award for an abuse of discretion.
See, e.g., Trustmark Life Ins. Co. v. Univ. of Chicago Hosps.,
This circuit has recognized two tests for analyzing whether attorney’s fees should be awarded to a “prevailing party” in an ERISA case.
See Quinn v. Blue Cross & Blue Shield Ass’n,
In applying these five factors to the facts at hand, the magistrate judge found that “[tjhere is some evidence of culpability on the part of the Plan that goes beyond simply an erroneous decision.” (R. at 119, p. 9.) The judge pointed to the fact that after the plaintiffs filed suit, HCSC reevaluated the claim, deciding that an award of twelve hours per day of medical care was appropriate. (Pl.’s Ex. 12.) The judge found this to be “a dramatic turnaround.” (R. at 119, p. 9.) The judge viewed with similar dismay “the fact that it took four months for the new payment level to be implemented,” as it suggested “at best that the Plan dragged its feet.” (Id.) The judge also found that the second and third factors weighed in favor of an award to the plaintiffs, as “[tjhere is no evidence questioning the ability of the Plan to pay such an award, and there is no question that such an award would serve to deter this Plan and others from making the kind of superficial evaluation seen in this case, especially when the evaluation has such an enormous impact on the lives of the participants and beneficiaries.” (Id. at 9-10.) As to the fourth and fifth factors, the judge reasoned that the likely improvements that would be made to the Plan’s review procedures could only help all Plan participants, and that the merits of the case “were strongly on the side of plaintiffs.” (Id. at p. 10.)
Based on our review of the record, the briefs, and controlling law, we find the magistrate judge’s award of attorney’s fees and costs was reasonable. We also find that the amount of the award, $96,922.50 in attorney’s fees and $15,363.72 in costs, was similarly well-reasoned. In his order dated November 15, 2001, the magistrate judge followed the applicable law for such awards. (R. at 141, pp. 2-4.)
See Hensley v. Eckerhart,
D. Prejudgment Interest
HCSC argues that the district judge’s award of prejudgment interest to the plaintiffs was erroneous. Case law from this circuit and other circuits suggests that prejudgment interest may be appropriate in ERISA cases.
See, e.g.,
Contrary to the assertion in HCSC’s brief, “bad faith” is not the sole criterion when considering whether an award of prejudgment interest is appropriate. (Def.’s Br. at 52.)
See Trustmark,
The sole remaining issue is our review of the magistrate judge’s calculation of the amount of prejudgment interest, another item which is left to the discretion of the district court.
See Gorenstein,
Here, where no statutory interest rate applies, we see no reason to disturb the magistrate judge’s decision to award prejudgment interest at a rate of 8.33%, for a total sum of $56,170.11, to the plaintiffs. (R. at 141.) As the magistrate judge noted, the defendants could have been charged with even more had the plaintiffs sought compounding interest, which the district court in its discretion could have awarded.
See Gorenstein,
IV. CONCLUSION
We hold that the district court’s decision to grant the plaintiffs’ motion for summary judgment was proper, as was the district court’s award of attorney’s fees, costs, and prejudgment interest.
Affirmed.
Notes
. Hypoxic encephalopathy is permanent and irreversible brain damage caused by an inadequate flow of oxygen to the brain. Dorland’s Illustrated Medical Dictionary 550, 810 (27th ed.1988). (R. at 366.)
. Microcephaly is a condition in which neither the skull nor the brain grows because of some injury to the brain. Dorland's Illustrated Medical Dictionary 1032 (27th ed.1988). (R. at 392.)
. This circuit has long recognized that district courts have discretion to require administrative exhaustion, and that we will overturn a district court's decision only for a clear abuse of discretion.
See Gallegos v. Mt. Sinai Med. Ctr.,
. We note in passing that a previous decision from a panel of this court once noted a distinction between the "arbitrary and capricious” standard of review and the "abuse of discretion” standard of review.
See Morton v. Smith,
. Judicial review of a plan administrator’s decision must, ordinarily, be particularly pen
. Plaintiffs themselves seem confused on this point. See Pl.’s Br. at 19 (referring to "paragraph H of the plan,” when they obviously mean the ASA).