## Facts

- DuPont sponsored and funded an ERISA hospital medical-surgical benefits plan covering retirees and dependents.
- DuPont contracted with Connecticut General to administer claims and with Preferred Health Care to provide utilization review/case management.
- Jack R. Salley was a retired DuPont employee; his minor daughter, Danielle, was covered as a dependent.
- Danielle, age 15, had significant psychiatric problems, including depression, drug abuse, and dangerous behaviors, and had multiple psychiatric hospitalizations at DePaul Northshore Hospital under treating psychiatrist Dr. Gordon Blundell.
- During Danielle’s third admission, the plan initially authorized inpatient benefits but later terminated coverage on the ground that continued inpatient treatment was not “medically necessary” under plan criteria.
- Danielle’s treating psychiatrist recommended continued inpatient care based on her history of relapse after discharge and safety concerns.
- The Salleys paid for continued inpatient treatment and sued under ERISA to recover benefits, alleging improper termination of coverage.
- After a bench trial, the district court found an abuse of discretion, awarded benefits and attorney’s fees, and ordered each party to bear its own costs.

## Issues

1. Whether the plan conferred discretionary authority on DuPont such that the benefit termination was reviewed for abuse of discretion, and whether the termination of inpatient psychiatric benefits was arbitrary and capricious under that standard.
2. Whether the district court improperly applied a “treating physician rule” by giving controlling weight to the treating psychiatrist’s opinion.
3. Whether the district court abused its discretion in awarding attorney’s fees under ERISA, and whether the fee amount was erroneous.
4. Whether the district court erred by denying costs to the prevailing plaintiffs without adequate reasons under Federal Rule of Civil Procedure 54(d).

## Decision

- The Fifth Circuit held that the plan granted DuPont discretionary authority to interpret the plan and administer benefits; therefore, abuse-of-discretion review applied.
- Considering DuPont’s structural conflict as both payor and decision maker, the court affirmed the finding that DuPont abused its discretion in terminating inpatient benefits as not medically necessary.
- The court rejected the argument that the district court applied a rigid treating-physician rule, concluding the treating psychiatrist’s longitudinal evidence was permissibly weighed against less thorough reviews.
- The court affirmed the award of attorney’s fees to the Salleys and affirmed the fee amount.
- The court remanded the costs ruling because the district court required each party to bear its own costs without sufficient explanation, despite the presumption favoring costs for the prevailing party.

## Legal Principles

- Under ERISA, denials of benefits are reviewed de novo unless the plan grants discretionary authority; when discretion is granted, courts apply abuse-of-discretion (arbitrary and capricious) review.
- A plan administrator’s conflict of interest as both funder and decision maker is a factor in assessing reasonableness under abuse-of-discretion review and may reduce the level of deference depending on the record.
- ERISA does not impose a formal treating-physician rule, but a court may credit treating-provider evidence when assessing whether the administrator’s decision is supported by substantial evidence.
- Attorney’s fees may be awarded in the court’s discretion under 29 U.S.C. § 1132(g)(1) based on equitable factors, including culpability, deterrence, and relative merits.
- Under Rule 54(d), costs are presumptively awarded to the prevailing party; denial of costs requires stated reasons on the record.

## Conclusion

The Fifth Circuit affirmed a benefits award and attorney’s fees under ERISA after concluding that a conflicted plan administrator abused its discretion by terminating inpatient psychiatric coverage contrary to substantial clinical evidence, and it remanded only for reconsideration or explanation of the district court’s denial of costs to the prevailing plaintiffs.


Salley v. E.I. DuPont de Nemours & Co., 966 F.2d 1011 (5th Cir. 1992)