The U.S. Court of Appeals for the Ninth Circuit affirmed a lower court ruling that favored Blue Shield of California in a dispute over employee benefit plan coverage for residential mental health treatment. The memorandum decision, filed Jan. 27, 2026, upheld the insurance company's denial of benefits under the Employee Retirement Income Security Act.
The case, *R.R. v. California Physicians' Service* (9th Cir. 2026), involved plaintiffs R.R. and his son E.R., who sued Blue Shield of California seeking recovery of medical expenses under R.R.'s employee benefit plan. The plan listed E.R. as a covered dependent, but Blue Shield denied benefits for E.R.'s stay at Innercept, a residential mental health treatment center.
Blue Shield, serving as the plan administrator, denied the benefits claim on grounds that E.R.'s residential treatment stay was not "medically necessary" under the terms of the benefit plan. This determination became the central issue in the litigation, as plaintiffs challenged the denial and sought coverage for the mental health treatment expenses.
The case originated in the U.S. District Court for the Northern District of California, where District Judge James Donato presided over the proceedings. The district court granted summary judgment in favor of Blue Shield, finding that the insurance company's benefits denial was proper under ERISA standards.
Plaintiffs appealed the district court's decision to the Ninth Circuit, which heard oral arguments on Oct. 23, 2025, in San Francisco. The three-judge panel consisted of Circuit Judges Paez, Bea, and Forrest, with Judge Paez filing a dissenting opinion in the case.
The court applied the abuse-of-discretion standard in reviewing the ERISA benefits decision, which is the typical standard used when plan administrators have discretionary authority to determine benefit eligibility. Under this standard, courts give deference to plan administrators' benefit determinations unless they constitute an abuse of discretion.
In ERISA benefits cases where the abuse-of-discretion standard applies, the court noted that "a motion for summary judgment is merely the conduit to bring the legal question before the district court and the usual tests of summary judgment do not apply." This procedural framework means that courts focus on whether the plan administrator's decision was reasonable rather than conducting a de novo review of the evidence.
The Ninth Circuit's affirmance means that Blue Shield's determination that the residential mental health treatment was not medically necessary under the plan terms was within the bounds of reasonable plan administration. The court found that Blue Shield did not abuse its discretion in denying the benefits claim.
However, the decision was not unanimous. Judge Paez filed a dissenting opinion, indicating disagreement with the majority's conclusion. While the specific reasoning of the dissent was not detailed in the available court filing, dissenting opinions in ERISA cases often involve different interpretations of the evidence supporting medical necessity or concerns about the plan administrator's decision-making process.
The case highlights ongoing challenges in ERISA benefits litigation, particularly regarding mental health treatment coverage and the medical necessity standard. Residential treatment facilities like Innercept provide intensive mental health services, but insurance coverage for such treatment often becomes contested when plan administrators question whether the level of care meets medical necessity criteria.
ERISA, enacted in 1974, governs employee benefit plans and provides a federal framework for challenging benefits denials. The law allows plan participants to sue for benefits under 29 U.S.C. § 1132(a)(1)(B), which was the provision plaintiffs invoked in this case.
The memorandum decision is marked "not for publication," meaning it will not serve as binding precedent except as provided by Ninth Circuit Rule 36-3. This designation is common for routine ERISA benefits cases that do not establish new legal principles or address novel issues of law.
For the plaintiffs, the affirmance means they will remain responsible for the costs of E.R.'s residential mental health treatment at Innercept. The decision underscores the challenges faced by families seeking insurance coverage for intensive mental health services when plan administrators determine such treatment exceeds what is medically necessary under plan terms.
The case also demonstrates the significant deference courts give to plan administrators under the abuse-of-discretion standard, making it difficult for plan participants to successfully challenge benefits denials in federal court. This standard requires plaintiffs to show not just that a different decision might have been reasonable, but that the administrator's actual decision was unreasonable or arbitrary.
Blue Shield of California, operating as California Physicians' Service, avoided potential liability for the residential treatment costs through this favorable appellate ruling. The decision reinforces insurance companies' ability to make medical necessity determinations under ERISA plans, provided those determinations fall within reasonable bounds of plan administration.