This section contains the nature of the case and procedural background.

D established its Hospital Medical-Surgical Coverage Policy (Plan) in accordance with the Employee Retirement Income Security Act of 1974, (ERISA). Connecticut General administered the Plan, and D reimbursed Connecticut General the full costs of medical claims. d also contracted with Preferred Health Care (Preferred) to manage the individual cases. Danielle is a fifteen-year-old girl with a history of emotional disabilities, drug abuse, and depression. Her father, P, is a retired Demployee and continues to participate in the Plan under which Danielle is covered as his dependent. Danielle has been an in-patient three times at DePaul Northshore Hospital in Covington, Louisiana. Each time, she has been under the care of Dr. Gordon Blundell, a psychiatrist in charge of the hospital's adolescent unit. D terminated P’s benefits during the third admission to the hospital. During her first two visits, Danielle was an extremely troubled child. She displayed suicidal tendencies, attempted to escape, and experienced episodes of head-banging. She improved during each visit, but as soon as she was released, she 'recompensated'--i.e. reverted back to her previous behavior. Dr. Blundell thus determined that Danielle could not live with her parents and attend public schools. In an attempt to eliminate the revolving door admissions, Dr. Blundell worked with Plan administrators to 'flex' the benefits. A 'benefits flex' is a health insurance industry practice in which the parties amend or modify the policy's coverage benefits in order to accommodate a contingency that the original contract did not address specifically. Although the policy does not in terms permit the treatment provided, the treatment is mutually beneficial because the insured receives the coverage desired while the insurer reduces its payout expense through less expensive treatment. P and hospital employees attempted to locate a less restrictive treatment for Danielle, including several boarding schools. Unable to find such a facility, the hospital released Danielle to attend public school. She recompensated. Danielle was readmitted and began to function at the highest level she ever has in life. Dr. Blundell conversed with Ron Schlegel, a Preferred case manager, regarding Danielle's condition. Schlegel was knowledgeable about Danielle's case because he had been involved with it since her first admission. Dr. Blundell did not think he could release her because she would quickly regress. Schlegel advised Dr. Blundell that Dr. Satwant Ahluwalia, in accordance with Preferred procedures, would review the case to determine medical necessity. The Plan pays only for expenses that are 'medically necessary,' although the Plan never defines the phrase. Dr. Ahluwalia, a psychiatrist and regional director at Preferred, had been involved with the case since Danielle's first admission. She never had examined Danielle nor reviewed the medical records from the second or third admission. She had reviewed the records from Danielle's first admission. Dr. Blundell told Dr. Ahluwalia that Danielle was stabilizing but he did not want to repeat the revolving door of admissions. Dr. Ahluwalia instructed Dr. Blundell that DuPont would terminate the benefits for in-patient hospitalization on October 11, 1990, knowing that Dr. Blundell did not agree. P brought a suit challenging DuPont's termination of benefits from October 11, 1990, through January 25, 1991. Dr. Blundell discharged Danielle on January 25, 1991. She has since enrolled in the Darrow School in New York. The court ruled that D abused its discretion when it terminated benefits. It found DuPont liable for Danielle's hospital bills from October 11, 1990, through January 25, 1991. The court awarded discretionary attorney's fees under 29 U.S.C. § 1132(g) and required each party to pay its own costs. D appealed.

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