Bailey v. Blue Cross Blue Shield of Virginia, 67 F.3d 53 (4th Cir. 1995) – decided October 11, 1995 – United States Court of Appeals for the Fourth Circuit – Robert E. Hoskins

I represented Bailey. Bailey is one of a series of many high dose chemotherapy cases in which I represented the plaintiff in the 1990s; many others are discussed in this site. To view them all, use the search function and put in the phrase “high dose chemotherapy”. Bailey involved a situation where the insurer, Blue Cross Blue Shield of Virginia, had a specific exclusion for bone marrow transplants and stem cell rescues (then commonly used support procedures for high dose chemotherapy treatment) in its policy language. The question presented was whether the exclusion language was so broad as to encompass the actual high dose chemotherapy treatment, itself. With the procedure known as high dose chemotherapy supported by a peripheral stem cell rescue (HDC/PSCR), the high dose chemotherapy actually treats the cancer and the stem cell rescue or bone marrow transplant, as the case may be, is a support and recovery procedure. I argued that the specific exclusion should not be read so broadly as to include the high dose chemotherapy. Obviously, Blue Cross argued to the contrary. The United States District Court for the Eastern District of Virginia ruled with Bailey. (Click here to view the district court opinion on the merits.) The defendant appealed to the United States Court of Appeals for the Fourth Circuit. The Fourth Circuit used Bailey to clarify the applicable standard of review for ERISA governed insured benefit plans. In fact, to this day, Bailey is my most often cited decision out of the Fourth Circuit. As of March 2008, Bailey had been cited over 220 times including by the United States Courts of Appeals for the Seventh and Tenth Circuit. Bailey is usually cited in connection with a discussion of the standard of review for insured ERISA plans or the applicability of the doctrine of contra proferentum which mandates that ambiguities in insured plans are construed against the drafter of the plan. On the former issue, the court stated in Bailey:

“Blue Cross Blue Shield concedes that it operated under a conflict of interest when it denied the benefits sought by Bailey. It argues, though, that the district court erred by not articulating the degree of (lessened) deference it accorded Blue Cross’s decision. Although the district court did not elaborate specifically on the degree of deference it considered appropriate, the lower court correctly articulated the legal standard we established in Doe. Joint Appendix at 364. Furthermore, after citing the relevant case law, it expressly found that Bailey was entitled to summary judgment “in light of the deference to be accorded to the administrator of the Policy under the facts of this case.” Id. at 373. Although a more extensive analysis might have been helpful, we cannot say that the district court erred in its application of the law. A more thorough explanation might have been necessary had the conflict of interest not been as total as that in this case, where Blue Cross stood as the single beneficiary of a substantial sum based on its denial of benefits. Cf. Brown v. Blue Cross Blue Shield, 898 F.2d 1556, 1564 (11th Cir. 1990) (“When the members of a tribunal - - for example, the trustees of a pension fund - - have a serious conflict of interest, the proper deference to give may be slight, even zero; the decision if wrong may be unreasonable.”).”

With regard to the contra proferentum issue, the court found that the policy was ambiguous and stated:

“Blue Cross next argues that even under the less deferential standard described above, its decision to deny Bailey benefits was proper, because the policy’s language unambiguously indicates that high dose chemotherapy is not covered. Construing the exclusion for “stem cell rescue (in which the patient is the donor) with high dose chemotherapy or radiation,” Blue Cross essentially interprets “with” as unambiguously meaning “and”. Joint Appendix at 180. In contrast, Bailey contends that the language is ambiguous as a matter of law. In assessing this argument, we must interpret the policy using ordinary principles of contract law, enforcing the plan’s plain language in its ordinary sense. Hardester v. Lincoln Nat. Life Ins. Co., 33 F.3d 330, 338 (4th Cir. 1994) (Hall, J., dissenting), vacated on reh’g, 52 F.3d 70 (4th Cir. 1995) (en banc) (adopting panel dissenting opinion). “Where a term is ambiguous, we must construe it against the drafter, and in accordance with the reasonable expectations of the insured.” Wheeler, F.3d at (citations omitted).

 

Both parties rely on our holdings in Doe, 3 F.3d at 80, and Hendricks v. Central Reserve Life Ins. Co., 39 F.3d 507 (4th Cir. 1994), as supporting their respective positions regarding whether the language at issue is ambiguous. In Doe, the “rescue” procedure preceding chemotherapy and radiation involved an autologous transplant of bone marrow, rather than peripheral stem cells. 3 F.3d at 82. The medical principles, however, were equivalent to those underlying the procedure for which Bailey seeks coverage. The insurance policy at issue in Doe excluded “services or supplies for or related to” the bone marrow transplant. Id. at 88. Elsewhere in the policy, coverage for chemotherapy and radiation specifically was provided. Id. at 87-88. Applying the less deferential abuse of discretion standard discussed above, we held that the policy covered the high dose chemotherapy portion of a cancer patient’s treatment, id. at 89.

 

In contrast, we held in Hendricks that the plaintiff’s insurance policy did not cover high dose chemotherapy. The policy at issue in that case excluded “treatment or services experimental or investigational in nature.” 39 F.3d at 511. After ruling that the desired HDC/PSCR treatment fell within the exclusion, the court rejected the plaintiff’s argument that phases of the treatment other than the high dose chemotherapy itself were covered. “To fragment the phrases of treatment and consider each in light of the policy language produces an unrealistic and distorted analysis.” Id. at 514.

 

Applying these cases, the ambiguity in Bailey’s policy becomes apparent. The desire in Hendricks to avoid excessive fragmentation supports Blue Cross’s view that HDC/PSCR is a unified treatment. On the other hand, if high dose chemotherapy was not a service “related to” the autologous bone marrow transplant in Doe, it is reasonable to conclude that the policy exclusion covers only the distinct PSCR. Moreover, as the district court found, “the record does not preclude the possibility that there may indeed be cases where HDC is not accompanied by PSCR.” Joint Appendix at 371. That possibility is consistent with Bailey’s interpretation of the policy as providing coverage for all types of chemotherapy - - including treatment with high doses. We have held repeatedly that ambiguous language must be construed against the drafter. Doe, 3 F.3d at 89; Glocker v. W.R. Grace & Co., 974 F.2d 540, 544 (4th Cir. 1992). Particularly because “Blue Cross’ discretionary interpretation to the contrary is not entitled to the deference we might otherwise accord,” Doe, 3 F.3d at 87, the district court’s ruling prohibiting Blue Cross from denying coverage for Bailey’s high dose chemotherapy was proper as a matter of law.” (Click here to see the Fourth Circuit opinion)

The Doe and Hendricks cases obviously weighed heavily into the Fourth Circuit’s decision in Bailey as discussed above. In the Hendricks case, I represented Mr. Hendricks (click here to see a discussion of the Hendricks in this website). I did not represent Doe. (However, to view the Doe decision click here.)

The defendant petitioned the United States Supreme Court for cert. The Supreme Court denied the Blue Cross’ petition. Interestingly, the very issues raised by Blue Cross Blue Shield of Virginia in its petition to the US Supreme Court are the same issues that the Supreme Court is scheduled to decide in 2008 in the case of Barron v. Metropolitan Life Insurance Company. (Click here, to see the entry for the Barron Supreme Court case at the Supreme Court level as compiled at SCOTUS Wiki.)

As an aside, the Bailey case also resulted in an interesting opinion from District Court Judge Calvet Clark on vacating judgments. (Click here to that opinion.)