## Facts

- Eugene S. was covered by an ERISA-governed employer health plan insured/administered by Horizon; he sought benefits for his minor son A.S.’s mental-health residential treatment.
- Horizon delegated administration of mental-health benefits to Magellan Behavioral Health of New Jersey, LLC.
- A.S. stayed at a residential treatment center for about ten months.
- Magellan initially denied residential treatment coverage, finding A.S. met criteria only for intensive outpatient care.
- After internal appeals, Magellan approved residential treatment only for August 10 through November 2, 2006, and denied residential-level coverage from November 3, 2006 through June 12, 2007.
- Plan documents granted Horizon (and its designees) discretionary authority to determine medical necessity and appropriate level of care.
- Magellan applied continued-stay criteria requiring current clinical information showing the patient could not safely function outside a residential setting; it found A.S. improved, did well on home passes, and lacked evidence of need for continuous supervision after the initial period.
- Eugene exhausted internal appeals and sued under ERISA § 502(a)(1)(B) to recover denied benefits.

## Issues

1. Whether the district court abused its discretion by denying Eugene’s motion to strike Horizon’s late-filed declaration and the vendor agreement documenting delegation to Magellan.
2. Whether the benefits denial should be reviewed de novo or under the arbitrary-and-capricious standard based on the plan’s grant of discretion.
3. Whether, under arbitrary-and-capricious review (considering any conflict of interest), the denial of residential treatment benefits after November 2, 2006 was unreasonable or unsupported by substantial evidence.

## Decision

- The Tenth Circuit affirmed summary judgment for Horizon.
- The district court did not abuse its discretion in declining to strike the declaration and vendor agreement; consideration of that material was permissible for conflict-of-interest analysis and was harmless because Eugene did not meaningfully dispute Magellan’s role.
- The plan’s discretionary language required arbitrary-and-capricious review; delegation to Magellan did not change the standard.
- Substantial evidence supported the determination that A.S. no longer met residential continued-stay criteria after November 2, 2006, and the denial was not arbitrary and capricious.
- Any insurer-administrator conflict of interest was treated as a factor, but the record did not show it affected the decision.

## Legal Principles

- When an ERISA plan grants discretionary authority to determine eligibility or construe plan terms, courts review benefit denials under the arbitrary-and-capricious standard.
- Delegation of claims administration to a third-party administrator does not alter the standard of review when the plan confers discretion on the administrator and its designees.
- Evidence outside the administrative record may be considered for limited purposes, including evaluating the existence and scope of a claimed conflict of interest, but not to relitigate benefit eligibility.
- A structural conflict of interest (entity both evaluating and paying claims) is weighed as a factor within arbitrary-and-capricious review and requires record-based support to affect the outcome.
- Under arbitrary-and-capricious review, a denial is upheld if reasonable and supported by substantial evidence, even where medical judgments about level of care are disputed.

## Conclusion

The court upheld Horizon’s denial of continued residential treatment benefits because the plan conferred discretionary authority triggering arbitrary-and-capricious review, extra-record material was properly considered only to assess conflict, and the denial reasonably applied continued-stay criteria and was supported by substantial evidence without proof that any conflict influenced the decision.


Eugene S. v. Horizon Blue Cross Blue Shield of N.J., 663 F.3d 1124 (10th Cir. 2011)