Wheeler v. Dynamic Engineering, Inc., 62 F.3d 634 (4^th Cir. 1995) – decided August 16, 1995 – United States Court of Appeals for the Fourth Circuit – Robert E. Hoskins

I represented Wheeler.  In Wheeler, the plaintiff suffered from breast cancer and her physician prescribed a treatment known as high dose chemotherapy supported by a peripheral stem cell rescue (HDC/PSCR).  Mrs. Wheeler was covered under an ERISA governed health benefit plan through her husband’s employer, Dynamic Engineering, Inc.  HDC/PSCR is a multi-stage procedure that is usually administered in distinct phases over a period of months.  Wheeler had begun the first phase of her treatment at the very end of calendar year 1993.  Effective January 1, 1994, the sponsor/administrator of her health benefits plan amended its coverage to specifically exclude coverage for the treatment which Wheeler had already begun in 1993.  Wheeler continued her treatment to its conclusion, but the plan denied coverage for bills for treatment rendered after the January 1, 1994 coverage change.  The plan appealed and in what was then the first circuit court opinion to address the issue, the United States Court of Appeals for the Fourth Circuit ruled that Wheeler’s right to coverage “vested” under the prior year’s plan when she began the first phase of her multi-stage treatment.  The district court ruled for Wheeler.  (Click here to view the district court opinion.)  The court stated:

“Coverage under a medical insurance policy or plan is normally triggered by one of two events.  If a policy insures against illness, coverage for all medical costs arising from a particular illness vests when the illness occurs.  Buell v. Security General Life Ins. Co., 987 F.2d 1467, 1469 (10^th Cir. 1993) (applying Colorado law).  If a policy insures against expenses, coverage vests when the expenses are incurred.  Id.  See also Mote v. State Farm Mut. Auto. Ins. Co., 550 N.E.2d 1354, 1356-57 (Ind. App. 1990) (collecting cases); see generally Thomas Goger, Annotation, Elimination of Particular Coverage, or Termination, of Health, Hospitalization, or Medical Care Insurance Policy as Affecting Insurer’s Liability for Insured’s Continuing Hospitalization or Medical Expenses Relating to Previously Covered Illness, 66 A.L.R.3d 1205 (1975).

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Dynamic’s 1993 medical care plan does not define when an expense is deemed “incurred.” (fn 5 omitted)  When construing insurance policies limiting coverage to expenses incurred within a certain time period, state courts have found payments for services covered “only when those services were arranged for, contracted for or paid for prior to the expiration of the policy time limits.”  Fuerstenberg v. Mowell, 63 Ohio App. 2d 120, 409 N.E.2d 1035, 1036-37 (Ohio App. 1978) (emphasis added); see Farr v. Travelers Indem. Co., 84 Misc. 2d 189, 375 N.Y.S.2d 229 (1975); Atchley v. Travelers Ins. Co., 489 S.W.2d 836 (Tenn. 1972); see generally Annotation, When is Medical Expense “Incurred” Under Policy Providing for Payment of Medical Expenses Incurred Within Fixed Period of Time from Date of Injury, 10 A.L.R.3d 468 (1966).

Here, the district court found that Wheeler began the first step of the multi-stage HDC/PSCR procedure on December 15, 1993.  The district court found as a factual matter that HDC/PSCR, although it involved several phases, was a single, multi-stage medical procedure.  We have likewise recently held that HDC/PSCR should be regarded as a single treatment for purposes of coverage under an ERISA health care plan.  Hendricks v. Central Reserve Life Ins. Co., 39 F.3d 507, 514-15 (4^th Cir. 1994).  This case thus presents the unusual situation in which a policy terminates while an insured is in the first stage of a medical procedure covered under the terminated policy.

Few courts have addressed this situation, but most of them have concluded that coverage for the entire procedure vests when the procedure begins.  For example, in Atchley, Atchley was insured under a medical policy covering expenses incurred within one year from the date of an accidental injury.  He fractured his right leg in an accident and as part of his treatment had two metal screws temporarily implanted into his tibia.  After the year had expired, Atchley had the screws removed and sought coverage for the removal.  The court held that because removal of the screws was a necessary part of a procedure that began within one year of the accident, the cost of the removal was incurred when the screws were inserted.  489 S.W.2d 836-37.  Similarly, the court in Butler v. Provident Life & Accident Ins. Co., 617 F.Supp. 724 (D.C. Miss. 1985), considering a hypothetical man who contracts a hypothetical ailment; begins treatment with the expectation that the treatment will end within an operation within three months; and then is terminated prior to that operation, said that such a man would be covered under his group insurance policy under Mississippi law.  Id. at 729 (emphasis in original).  See also Whittle v. Government Employees Ins. Co., 51 Misc. Misc. 2d 498, 273 N.Y.S.2d 442 (N.Y. App. Term 1966) (under plan covering expenses incurred within one year of accident, expenses for dental work commenced but not completed within one year of accident were “incurred” within that year).

We agree with the reasoning of Atchley and Butler.  When an insured arranges for and begins a particular medical procedure, she has for all practical purposes committed herself to undergo all required steps in that procedure.  Accordingly, she has “incurred” all expenses stemming from it.  This interpretation of Dynamic’s policy best accords with the reasonable expectations of insureds.  See Elmore v. Cone Mills Corp., 23 F.3d 855, 869 (4^th Cir. 1994) (en banc) (ERISA’s purpose is “to protect the expectations of those who are the beneficiaries of the Plan.”) (Murnaghan, J. concurring).  As the Washington Supreme Court has aptly stated,

we find it difficult to believe that the “average man purchasing insurance” would, or could, contemplate from a reading of this contract that the defendant’s obligation terminates when the clock strikes midnight and the contract year ends, even though the insured may still be hospitalized or in need of further medical treatment . . . .

Myers v. Kitsap Physicians Serv., 78 Wash. 2d 286, 474 P.2d 109, 111 (Wash. 1970) (en banc).  If an employer could terminate coverage during the middle of a procedure, leaving an employee without insurance (and likely unable to obtain alternative coverage), an employee would be unable to make an intelligent decision about whether to begin a particular procedure, even when that procedure is plainly covered under an existing ERISA plan.  For this reason, we have previously noted that limits may exist on an employer’s ability to rely on an amendment to deny coverage previously established.  Doe v. Group Hospitalization & Medical Serv., 3 F.3d 80, 83 n. * (4^th Cir. 1993) (“Any attempt by Blue Cross to rely on a post-precertification pre-therapy amendment to deny benefits to John Doe . . . might raise serious questions concerning Blue Cross’ duties, both as a fiduciary and under the insurance contract with Firm Doe, and its good faith.”)  We therefore hold that Wheeler incurred the expenses for her HDC/PSCR treatment, and coverage for these expenses vested under the 1993 plan, when she entered the first stage of the procedure in December of 1993.”  Wheeler, 62 F.3d 634, 638-640.  (Click here to see the Fourth Circuit’s Wheeler opinion.)

At the time, Wheeler was a very important decision.  By early 2008, the case had been cited at least 70 times by other courts or law review articles including the United States Courts of Appeals for the Third, Seventh and Tenth Circuits. 

In late 2007, the Fourth Circuit revisited Wheeler in the context of a different fact situation.  In Blackshear v. Reliance Standard, 509 F.3d 634 (4^th Cir. 2007).

The court stated:

“The group policy is part of an “employee welfare benefit plan,” see 29 U.S.C.A. § 1002(1) (West 1999), which is “exempt from the statutory vesting requirements that ERISA imposes on pension benefits.”  Wheeler v. Dynamic Eng’g, Inc., 62 F.3d 634, 637 (4^th Cir. 1995).  Generally speaking, “a plan participant’s interest in welfare benefits is not automatically vested,” and an employer sponsoring the plan may therefore unilaterally “terminat[e] or modify[] previously offered benefits that are not vested.”  Gable v. Sweetheart Cup Co., 35 F.3d 851, 855 (4^th Cir. 1994); see Wheeler, 62 F.3d at 637 (“[A]n employer may amend the terms of a welfare benefit plan or terminate it entirely.”).

Nevertheless, the terms of a plan may create vested rights in welfare benefits even though the employer is under no obligation to do so.  See Wheeler, 62 F.3d at 638.  “An employer or plan sponsor may unilaterally modify or terminate welfare benefits, unless it contractually agrees to grant vested benefits.”  Chiles v. Ceridian Corp., 95 F.3d 1505, 1510 (10^th Cir. 1996).  Once an employer or plan sponsor grants vested rights under a welfare benefit plan, however, it may not retroactively amend the plan to deprive a beneficiary of a vested benefit.  See Wheeler, 62 F.3d at 638, 640.  In Wheeler, this court rejected an attempt to amend a group medical insurance policy to eliminate coverage retroactively for a specific course of treatment that the beneficiary had already begun.  See id. at 640.  We concluded that the beneficiary’s rights under a welfare benefit plan providing medical insurance vested at the moment the triggering event under the policy occurred and that the plan could not be amended to deny coverage after that point.  See id. at 638-640.  Numerous courts have taken, in a wide array of circumstances, a similarly dim view of any amendment that attempts to retroactively eliminate vested welfare benefit rights.  See Member Servs. Life Ins. Co. v. American Nat’l Bank & Trust Co. of Sapulpa, 130 F.3d 950, 954-57 (10^th Cir. 1997); Filipowicz v. American Stores Benefit Plans Comm., 56 F.3d 807, 815 (7^th Cir. 1995); Bartlett v. Martin Marietta Operations Support, Inc. Life Ins. Plan, 38 F.3d 514, 517 (10^th Cir. 1994); Wulf v. Quantum Chem Corp., 26 F.3d 1368, 1377-78 (6^th Cir. 1994); Confer v. Custom Eng’g Co., 952 F.2d 41, 43 (3d Cir. 1991) (per curiam).

Accordingly, we must determine whether Blackshear’s right to life insurance proceeds vested before Reliance Standard issued the amended policy.  In Wheeler, we referred to general state insurance law in concluding that under a group medical insurance policy, benefits vested at the time that the covered loss occurs.  See 62 F.3d at 638 (“[U]nder a medical insurance policy or plan . . . insur[ing] against illness, coverage for all medical costs arising from a particular illness vests when the illness occurs.”)  Under “general principles of insurance contract law . . . such benefits do vest when performance is due under the contract.  At that point, the contract is no longer executory and must be performed in accordance with the terms then in existence.”  Member Servs., 130 F.3d at 956.  In the case of a group life insurance policy, the right to benefits vests – i.e., performance becomes due – at the time of the plan participant’s death.  See Filipowicz, 56 F.3d at 815; Adams v. Jefferson-Pilot Life Ins. Co., 558 S.E.2d 504, 507 (N.C. App. 2002); see generally 4 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 58:16 (3d ed.) (“[T]he rights of the named beneficiary vest at the instant of the insured’s death, and cannot be affected by an subsequent act of the insurer.”).  Here, Blackshear’s rights under the plan vested at the moment Verdie died, which was prior to the issuance of the amended policy containing a service waiting period.  The insertion of a waiting period had the effect of dispossessing Blackshear of rights that were already vested and was therefore impermissible.  (Click here to view the Fourth Circuit’s recent decision in Blackshear v. Reliance Standard.)

As an interesting end note to this case and all of the cases where I represented individuals seeking health insurance coverage for individuals to undergo HDC/PSCR in the 1990s, I would highly recommend the article “We Were All Sold A Bill of Goods: “Litigating the Science of Breast Cancer Treatment””, Jacobson and Doebler, 52 Wayne L. Rev. 43, Spring 2006.  In that article, the authors provide an excellent discussion about the litigation boom over HDC/PSCR for breast cancer in the late 1980s and particularly in the 1990s.  They cite to six or seven of my cases which are discussed in this case log in analyzing the causation of the 1990s litigation boom.  The article begins:

“In the late 1980s and 1990s, thousands of women elected to undergo high-dose chemotherapy with autologous bone marrow transplant (HDC-ABMT) as a last chance treatment for breast cancer, despite the fact that the procedure cost upwards of $100,000 and was also expensive in terms of risks and side effects.  When their health insurers refused to cover the treatment, many women sought payment through the judicial system.  The result was a series of nearly a hundred courtroom battles, not to mention thousands of settlement negotiations, in which judges and juries were forced to determine whether women would have access to a new procedure that offered their only hope for survivial.  Without it they would almost certainly die.  By the time studies were published conclusively showing that the procedure was ineffective, more than 30,000 women had already received the treatment, which often shortened their lives and added to their suffering, at a total cost of approximately $3 billion. 

What went wrong?  Howe could so much money have been spent and such suffering imposed for no apparent benefit?  The natural reaction to these devastating accounts is to assign blame.  Depending on one’s political and philosophical views, blame might be apportioned in the following ways.  First, in their quest to slash costs and raise the bottom-line, health insurers and managed care organizations ignored the needs of their policyholders.  Second, physicians pressured their patients into undergoing a procedure with essentially unknown risks and benefits, in a desperate attempt to give them at least a few more years of life.  Third, plaintiffs’ attorneys saw the opportunity to make the insurers pay - - both literally and figuratively - - for their cold-heartedness and pursued these cases aggressively.  Finally, courts, moved by the plight of the dying women who came before them, let sympathy trump the law.

These attempts to apportion blame are certainly plausible and accord with the conventional wisdom which views lawyers and the courts as especially culpable.  In this Article, we question the conventional system.  We examine the role that attorneys and the court system played in this unfortunate set of outcomes and explores alternatives to avoid replicating these results in the future.” (52 Wayne L. Rev. 43, 44, 45) 

Personally, I am very pleased that the authors concluded:

“In the end, it is hard to blame the attorneys for what occurred.  Each attorney represented his or her client in a manner that professional ethics demands and each acted with the best of intentions.  Was their advocacy overly aggressive under the circumstances?  Arguably so.  But keep in mind the reality that the patient had what amounted to a death sentence and chose to undertake a risky procedure as a last chance. 

As a society, we have yet to reach a balance between individual access to last chance therapies and the costs to society.  The nation’s culture of technology is embedded too deeply to accept limits very easily.  Like it or not, the legal system performed as it is designed to do-to protect individual litigants - - even if the judiciary is not the best forum for resolving controversial clinical scientific disputes.  Are we prepared instead to delegate that responsibility to insurers? We doubt it.  A much better alternative is for policymakers to focus on improving the technology assessment process and funding randomized control trials to determine a procedure’s effectiveness before its widespread diffusion into medical practice.” (52 Wayne L. Rev. 43, 111, 112)