Daniel KUNIN, Plaintiff-Appellee, v. BENEFIT TRUST LIFE INSURANCE COMPANY, Defendant-Appellant. |
No. 88-6573. |
Before NORRIS, REINHARDT and TROTT, Circuit Judges.
REINHARDT, Circuit Judge:
Benefit Trust Life Insurance Company ("Benefit Trust") appeals the
decision of the district court awarding benefits to Daniel Kunin
("Kunin").
Kunin, the Senior Vice-President of Maxim's Beauty Salons, Inc.,
incurred
over $50,000 in medical bills for the treatment of his child for
autism.
Kunin sought reimbursement of his expenses under a group health
insurance
policy issued to his employer; the parties agree that this policy is
itself
an "employee welfare benefit plan" governed by ERISA, and that Benefit
Trust functioned as both insurer and plan administrator. Following a
brief
investigation, Benefit Trust agreed to pay $10,000, but no more, on the
ground that autism fell within the policy's limitation for "mental
illness."
The district court concluded that autism is not a mental illness and
that
the denial of benefits was arbitrary and capricious, and ordered that
the
claim be paid in full. We agree that Benefit Trust was obligated to pay
the full amount of the claim.
Benefit Trust's medical director's cursory investigation did not
provide
reasonable grounds for determining that autism is a mental illness. The
testimony of Kunin's experts amply supports the finding that Benefit
Trust's
denial of benefits on the basis of that inquiry was arbitrary and
capricious.
Moreover, it is unclear whether the term "mental illness" encompasses
autism.
Under the law of all fifty states and the District of Columbia, where
an
unclear or ambiguous term is used in an insurance policy, the ambiguity
must be construed in favor of the insured. We therefore hold, in the
alternative,
that this rule of construction applies in the case before us, whether
as
a uniform rule of federal common law, or because federal common law
incorporates
state law on this point.
FN1. Dr. Ritvo has participated in the publication of over 100 papers on autism, and, we are told, is generally recognized as the world's foremost authority on the subject.
Benefit Trust's expert, Dr. Marvin Gillick, first offered a definition of "mental disorder" found in the American Psychiatric Association's Psychiatric Glossary. "Mental disorder" is defined as "an illness with ... impairment in functioning due to a social, psychologic, genetic, physical/chemical, or biologic disturbance.... The illness is characterized by symptoms and/or impairment in functioning." [FN2]
FN2. Dr. Gillick is a board certified psychiatrist, but has had limited experience with autistic individuals.
The district court rejected Dr. Gillick's definition, noting that it
could include a myriad of ailments that would never be considered
mental
illnesses, such as cancer or a broken leg. Dr. Gillick then suggested
that
mental illness was "an aberrant behavior syndrome or manifestation
which
has its basis in the neurological axis and/or central nervous system,
but
whose precise etiology is uncertain." The court rejected this
definition
as well, because it would exclude illnesses clearly within the ambit of
mental illness solely because their causes are known. Id.
The court then accepted the definition offered by Kunin's experts.
It held that including autism within the limitation clause covering
mental
illness was not a reasonable interpretation of the contract and the
plan,
and that the denial of benefits was arbitrary and capricious, and in
violation
of 29 U.S.C. § 1132. Kunin was awarded the claimed benefits plus
pre-judgment
interest. Id. at 1346-47.
FN3. Benefit Trust points to the pre-trial conference order, which states the relevant inquiry as "[w]hether the condition for which plaintiff's dependent, Alex Kunin, was examined and treated in approximately August of 1986 can be reasonably considered to be "mental illness or nervous disorders" (emphasis added).
For purposes of this appeal, therefore, we will review the district court's decision on the assumption that it was required to determine whether Benefit Trust's denial of Kunin's claim for benefits was arbitrary and capricious. In doing so we, like the district court, will ignore Benefit Trust's conflict of interest.
FN4. The administrator's decision predated Equitable
by
more than two years. Therefore, Dr. Zolot could not have relied on that
case in reaching his conclusion.
FN5. See State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal.3d 94, 101-02, 514 P.2d 123, 109 Cal.Rptr. 811 (1973).
FN6. See 2 G. Couch, R. Anderson, and M. Rhodes,
Couch
on Insurance 2d, § 15:83, at 399 n. 4 (rev. ed. 1984) (citing
cases
from the District of Columbia and 47 states, with no cases cited for a
contrary position); 13 J. Appleman & J. Appleman, Insurance Law and
Practice § 7401, at 197 n. 1 (rev. ed. 1976 & Supp.1989)
(citing
cases from the District of Columbia and 48 states, including the three
not included in the 47 listed in Couch, with no cases cited for a
contrary
position). See also A. Windt, Insurance Claims and Disputes §
6.02,
at 286 (2d ed. 1988) (stating that "the rule favoring coverage will be
applied in all jurisdictions").
the insurance contract is fairly susceptible of two different
interpretations,
another rule of construction will be applied: the interpretation that
is
most favorable to the insured will be adopted. The rule is based upon
the
principle of contract construction that when one party is responsible
for
the drafting of an instrument, absent evidence indicating the intention
of the parties, any ambiguity will be resolved against the drafter. A.
Windt, supra note 6, § 6.02, at 281-82 (footnote omitted). Because
we find the language of the limitation in question to be ambiguous, we
hold in favor of coverage on the alternative ground that Benefit Trust,
in its capacity as insurer, did not properly construe the ambiguities
in
its policy in Kunin's favor.
Of course, neither the law of California nor that of any other state
[FN7] is applicable here of its own force. The group health and medical
policy that covers Kunin is an "employee welfare benefit plan" as
defined
by ERISA, 29 U.S.C. § 1002(1); section 502 of ERISA, rather than
state
contract law, provides the legal basis for Kunin's claim. However,
"[c]ontroversies
directly affecting the operations of federal programs, although
governed
by federal law, do not inevitably require resort to uniform federal
rules."
United States v. Kimbell Foods, 440 U.S. 715, 727-28, 99 S.Ct.
1448,
1458, 59 L.Ed.2d 711 (1979). State law can sometimes control such
controversies,
either because Congress intends courts to look to state law, or because
the incorporation of state law into the federal common law is
"appropriate
as a matter of judicial policy under the three-part test established by
Kimbell Foods." Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d
1454,
1458 (9th Cir.1986).
FN7. In discussing the construction of insurance contracts, Benefit Trust cites only California law. However, because Maxim's is a Minnesota corporation and the plaintiff is a resident of Minnesota, we note that Minnesota law is to the same effect. Hubred v. Control Data Corp., 442 N.W.2d 308 (Minn.1989). Without deciding the question, we therefore indulge in Benefit Trust's tacit assumption that if any state's law controls, it is the law of California.
There is room for disagreement as to whether a uniform federal
rule of construction applies when we construe an ambiguous provision in
an ERISA insurance contract or whether the applicable state rule of
construction
is incorporated into federal law for that purpose. [FN8] However, *540
we need not decide that question here, because the rule of contra
proferentem
would control in either event. As we noted above, the contra
proferentem
rule is followed in all fifty states and the District of Columbia, and
with good reason. Insurance policies are almost always drafted by
specialists
employed by the insurer. In light of the drafters' expertise and
experience,
the insurer should be expected to set forth any limitations on its
liability
clearly enough for a common layperson to understand; if it fails to do
this, it should not be allowed to take advantage of the very
ambiguities
that it could have prevented with greater diligence. Moreover, once the
policy language has been drafted, it is not usually subject to
amendment
by the insured, even if he sees an ambiguity; an insurer's practice of
forcing the insured to guess and hope regarding the scope of coverage
requires
that any doubts be resolved in favor of the party who has been placed
in
such a predicament. Were we to promulgate a federal rule, we would find
these common-sense rationales sound. Indeed, it would take a certain
degree
of arrogance to controvert an opinion held with such unanimity in the
various
states and to adopt a contrary view as the federal rule. We hold,
therefore,
that the rule of contra proferentem applies to the case at bar,
regardless
of whether it applies as a matter of uniform federal law or because
federal
law incorporates state law on this point.
FN8. Briefly stated, the controversy revolves in
substantial
part around the effect of ERISA's preemption provisions, which provide
the most probative evidence of Congress's intention regarding choice of
law under ERISA (even though this is not a preemption case). Section
514(a)
provides in sweeping terms for the preemption of "any and all State
laws
insofar as they may now or hereafter relate to any employee benefit
plan.
" 29 U.S.C. § 1144(a) (emphasis added). However, Congress also
enacted
an "insurance saving clause" in § 514(b)(2)(A), which states that
with one exception not relevant here, "nothing in this subchapter shall
be construed to exempt or relieve any person from any law of any State
which regulates insurance...." 29 U.S.C. § 1144(b)(2)(A) (emphasis
added). Although the breadth of § 514(a) leaves no doubt about the
importance Congress attached to the federal interests involved, it
seems
equally clear that Congress meant to leave some state laws regulating
insurance
contracts intact--even though they may also "relate to" ERISA plans. Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724, 746-47, 105 S.Ct.
2380,
2392- 93, 85 L.Ed.2d 728 (1985). However, both this court and others
have
had some difficulty in determining when a law "regulates insurance" for
the purpose of this complex preemption analysis. See, e.g., Pilot
Life
Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39
(1987)
(holding that Mississippi's cause of action for tortious breach of a
covenant
of good faith and fair dealing is not a law "which regulates
insurance,"
and is thus preempted by ERISA); Metropolitan Life Ins. Co. v.
Massachusetts,
471 U.S. 724, 744, 105 S.Ct. 2380, 2391, 85 L.Ed.2d 728 (1985) (holding
that a state law requiring insurers to provide certain benefits
"regulates
insurance" and is therefore not preempted; and suggesting along the way
that the interpretation of an insurance policy is at "the core of the
'business
of insurance,' " (emphasis added) (quoting SEC v. National Securities,
Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568,
21 L.Ed.2d 668 (1969)); Kanne v. Connecticut Gen. Life
Ins. Co., 867 F.2d 489 (9th Cir.1988), cert. denied, 492 U.S. 906, 109
S.Ct. 3216, 106 L.Ed.2d 566 (1989) (relying on Pilot Life and holding
that
"California's common law of contract interpretation" is preempted in a
suit founded exclusively upon state law); McMahan v. New England Mut.
Life
Ins. Co., 888 F.2d 426, 429-30 (6th Cir.1989) (following Kanne and
holding
that because Kentucky's rule of contra proferentem is a rule of general
contract law rather than a law "which regulates insurance," state
decisions
applying that rule do not provide an independent state-law cause of
action
that escapes ERISA preemption, but not considering the content of
federal
common law). Moreover, if we were to determine that the Kimbell Foods
test
controls, there is ample room for disagreement as to whether the
application
of those standards in the case before us would result in the adoption
of
a uniform federal rule or the incorporation of each state's law. See
Mardan
Corp., 804 F.2d at 1458-60.
Benefit Trust points out additionally that in some instances this
court
has declined to apply the rule of contra proferentem in ERISA cases.
See,
e.g., Jung v. FMC Corp., 755 F.2d 708, 713 (9th Cir.1985); Smith
v. CMTA-IAM Pension Trust, 654 F.2d 650, 655 (9th Cir.1981); Rehmar
v. Smith, 555 F.2d 1362, 1369 (9th Cir.1976). As Benefit Trust
concedes,
however, those cases involved language that resulted from collective
bargaining;
Benefit Trust does not even suggest that this is such a case. Indeed,
the
district court found that the insurer was solely responsible for
drafting
the language at issue here. 696 F.Supp. at 1343.
Benefit Trust does argue, however, that Firestone Tire & Rubber
Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989),
effectively
abolished the rule of contra proferentem for all ERISA plans. Benefit
Trust
is supported on this point by the Health Insurance Association of
America
and the American Council of Life Insurance, appearing as amici curiae.
Benefit Trust and the amici point to the Firestone Court's adoption of
"settled principles of trust law," which require courts to "construe
terms
in trust agreements without deferring to either party's
interpretation."
489 U.S. at ----, 109 S.Ct. at 955. We are thus asked to conclude that
trust-law principles leave no room for the rule of contra proferentem
in
ERISA cases. We decline to do so.
Even if we overlook the considerable irony involved in Benefit Trust's
attempt to invoke the dicta of Firestone while asking us not to
apply
its holding, we do not read Firestone as broadly as we are urged. In
that
case, as we explained earlier, the Supreme Court was discussing the
standard
according to which courts should review a plan administrator's
interpretation
of plan provisions. The Court held that reviewing courts should
interpret
disputed provisions de novo, not defer to the administrator's
interpretation.
The Court said nothing whatsoever about the ordinary principles of
construction
according to which courts and administrators alike should arrive at
their
interpretations. Benefit Trust and the amici thus misread Firestone
because
they fail to distinguish between (1) using certain presumptions,
including
presumptions in favor of a party, in order to arrive at the correct
interpretation,
and (2) deferring to a particular party's interpretation. Rejecting (2)
obviously does not undermine the soundness of (1). We might say, for
example,
that a jury should not defer to a defendant's plea of "not guilty"--we
want the jury to determine his guilt or innocence de novo. However,
this
in no way implies that the jury, in making this determination, is not
required
to presume innocence--and indeed, to presume it quite strongly. Again,
we might say that a baseball umpire should not defer to a baserunner's
claim that he is safe; but this proposition is fully consistent with
the
separate rule that ties go the runner. Likewise, while we may not defer
to an insured's construction, we must not fail to indulge in a
presumption
that ambiguous language favors the insured.
This common-sense view of the matter is supported by Firestone itself.
The Court there noted, "The trust law de novo standard of review is
consistent
with the judicial interpretation of employee benefit plans prior to the
enactment of ERISA[, when] [a]ctions challenging an employer's denial
of
benefits [were] governed by principles of contract law." 489 U.S. at
----,
109 S.Ct. at 955. It is, then, quite plain that the Firestone Court
intended
no wholesale rejection of prevailing principles of plan interpretation
when it looked to trust law on the subject of the appropriate standard
of judicial review.
It remains only for us to determine if the meaning of the term "mental
illness" is so clear and well fixed that an ordinary reader of the
policy
would recognize that autism must be included. If not, in light of the
rule
that ambiguities in the policy must be construed against the insurer,
Kunin
must prevail. A plain reading of the language tells us beyond any
question
that "mental illness" is ambiguous, at least insofar as autism is
concerned.
The policy contains no definition or explanation of the term "mental
illness,"
and offers no illustration of the conditions that are included or
excluded.
Nor does the policy contain any language suggesting whether the cause
or
the manifestation determines whether an illness is covered; yet in the
case of autism the answer to that question may well be determinative.
Here,
the failure of the policy to define its terms is fatal to the insurer's
attempt to limit payment.
Insurance contracts generally spell out in inordinate detail the
meaning
of terms that lack a fixed meaning. Great efforts are ordinarily made
to
eliminate the natural ambiguity that exists in so many of the words and
phrases we use daily. In this policy, however, Benefit Trust made no
attempt
whatsoever to describe the scope of a term that has no precise or
generally
accepted definition. Under these circumstances, we conclude that the
term
"mental illness" is ambiguous. The vague evidence on which Benefit
Trust's
medical director based his determination, and the evidence in the form
of opinion testimony offered by Alex Kunin's doctors, strongly support
our conclusion. Thus, we hold that Benefit Trust erred in failing to
construe
the ambiguity in favor of the insured. [FN9]
FN9. In Equitable Life Assurance Soc'y v. Berry,
212 Cal.App.3d 832, 260 Cal.Rptr. 819 (Ct.App.1989), a California court
recently ruled against a claimant in a case with some substantial
similarities
to the one before us. In Equitable the illness was manic-depression;
however,
the reasoning of the opinion appears to conflict in some respects with
the basic view we have expressed. On the other hand the Equitable
policy,
unlike the one before us, defined "[m]ental or nervous treatment" in a
manner that may well have covered the treatment involved; furthermore,
the testimony of the experts in that case was of a wholly different
order.
In any event, we simply do not believe that the meaning of the bare,
unexplained
term "mental illness" is so plain and clear that the ordinary citizen
would
understand that autism, as opposed to manic-depression, is
excluded from full coverage under the policy.
For the two alternative reasons discussed above, the decision
of the district court is
AFFIRMED.