The claimant sought coverage for residential mental health treatment after being diagnosed with anorexia nervosa. Her treating physicians determined that outpatient and partial hospitalization care had failed and that residential treatment was medically necessary to address the severity of her condition.
Blue Shield denied coverage and issued a denial letter that relied on specific policy grounds to justify refusing payment. After litigation began, however, Blue Shield attempted to defend the denial by advancing new reasons and policy interpretations that had not been raised during the administrative claims process.
The Ninth Circuit held that an ERISA insurer may not defend a benefits denial using rationales that were not articulated during the administrative process. The court rejected Blue Shield’s attempt to introduce new arguments in litigation and confined judicial review to the reasons actually given to the claimant. The ruling forced insurers to fully and accurately state all grounds for denial up front and eliminated the ability to “save” a deficient denial by inventing new defenses after suit is filed.
