Gary A. Davolt v. The Executive Committee of O'Reilly Automotive, as Trustee and Plan Administrator of the O'Reilly Automotive Employee Health Plan

Citations: 206 F.3d 806; 24 Employee Benefits Cas. (BNA) 2470; 2000 U.S. App. LEXIS 3834; 2000 WL 276793Docket: 99-2381

Court: Court of Appeals for the Eighth Circuit; March 15, 2000; Federal Appellate Court

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O'Reilly Automotive, Inc. appeals a district court's summary judgment favoring Gary A. Davolt, which found O'Reilly liable for approximately $35,000 in medical expenses under its self-insured employee benefits plan, as governed by ERISA. The case arises from Davolt's claim for reimbursement for surgery related to a pre-existing condition, specifically peripheral vascular disease, diagnosed before his re-employment at O'Reilly in April 1995. O'Reilly denied the claim, citing the plan's exclusion for pre-existing conditions that were diagnosed or treated in the six months prior to coverage, arguing that Davolt's treatment with Trental, which began in 1991, constituted ongoing treatment. The district court ruled that Davolt’s treatment during the waiting period was part of a continuous treatment process, thus granting him summary judgment. O'Reilly contends that the district court misinterpreted the plan's language and should have applied a more deferential standard of review to its interpretation. The appeals court reviews the district court's standard of review de novo.

Federal courts apply an arbitrary and capricious standard of review to an ERISA plan administrator's interpretation when the administrator has discretionary authority to determine eligibility. However, if evidence indicates a conflict of interest or improper motive, a de novo review is warranted. In Armstrong v. Aetna Life Ins. Co., the court found a conflict of interest due to Aetna's incentive structure for claim reviewers, necessitating a less deferential review. This case did not establish a universal rule for de novo review in all instances where an insurer is also the plan administrator, emphasizing that the analysis must be fact-specific regarding the potential for a 'perpetual' conflict of interest.

In the current case, the district court incorrectly presumed a conflict of interest solely based on the plan administrator's dual role as a self-insured provider, which contradicts Aetna's ruling. O'Reilly contended that the arbitrary and capricious standard should apply, while Davolt argued for de novo review due to a perceived conflict. The court noted that the outcome would be the same regardless of the review standard applied.

The court concurred with O'Reilly that the district court misinterpreted the employee benefits plan's language concerning the pre-existing condition exclusion. The district court erroneously concluded that the exclusion applied only to conditions diagnosed or treated during the six-month waiting period, failing to recognize that conditions diagnosed or treated prior to this period, which continued during the waiting period, should also be excluded.

Davolt received drug therapy for his condition during a six-month waiting period. The district court recognized this but deemed the treatment irrelevant, arguing it was merely a continuation of prior treatment rather than new. The court interpreted the plan to exclude only new treatments during the waiting period. However, this interpretation contradicts the plan's explicit language, which states that a pre-existing condition includes any diagnosis or treatment occurring within the six-month timeframe, without distinguishing between ongoing and additional treatments. Consequently, Davolt's vascular disease qualifies as a pre-existing condition as defined by the plan, justifying O'Reilly's denial of coverage. The court emphasized that it cannot alter the plan's language to accommodate sympathetic cases. The judgment of the district court is reversed.