Opinion
Case No. 1:10-cv-50.
November 2, 2010
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS STATE LAW CLAIMS
Summary: Defendants filed a motion to dismiss state law claims contending that the Plaintiffs' state law claims were preempted by ERISA. The Court granted the motion finding the state law claims were preempted by ERISA. The Plaintiffs may pursue their charge of wrongful denial of health insurance benefits under ERISA's civil enforcement provision.
Before the Court is the Defendants' motion to dismiss state law claims filed on August 26, 2010. See Docket No. 8. The Plaintiffs filed a response in opposition to the motion on September 14, 2010. See Docket No. 12. The Defendants filed a reply brief on September 24, 2010. See Docket No. 14. For the reasons explained below, the motion is granted.
The Defendants have filed a notice explaining that Blue Cross and Blue Shield of Texas is a division of Health Care Service Corporation, a Mutual Legal Reserve Company. These are not separate entities. See Docket No. 13.
I. BACKGROUND
The plaintiffs, Arthur M. Hayden and Joy Lynn Hayden, are co-conservators and co-guardians of their adult son, Todd Lowell Hayden. Todd Hayden was severely injured in an all-terrain-vehicle (ATV) accident on June 13, 2009. His injuries included serious brain damage which required, and continues to require, significant medical and rehabilitative care. Medical expenses have exceeded $700,000 and continue to mount. At the time of the accident, Todd Hayden was an employee of Defendant Nabors Industries, Inc. Todd Hayden was covered by a Group Health Plan through his employer which plan was administered by Defendant Blue Cross and Blue Shield of Texas. Nabors Industries is the plan administrator for the Group Health Plan. Nabors Industries has delegated certain authority to Blue Cross and Blue Shield of Texas in order that it might act as claims administrator with the authority to deny claims in whole or in part.
Arthur and Joy Hayden repeatedly contacted Blue Cross and Blue Shield of Texas after their son's accident in order to obtain health insurance benefits for him under the health insurance policy. Blue Cross and Blue Shield of Texas did pay a small portion of the medical bills related to the accident but on March 2, 2010, denied coverage based on a policy exclusion for accidents involving alcohol. Blue Cross and Blue Shield of Texas explained "The group will not pay for any accidents where alcohol or drugs were involved." See Docket No. 1-5. The Haydens maintain that Todd Hayden's blood alcohol level in the emergency room was only .026 and that such a small level of alcohol is so minimal as to be inconsequential and would not constitute a justifiable basis for denial of health care benefits.
On June 28, 2010, the Plaintiffs filed suit in federal court alleging state law claims for breach of contract (Count I), declaratory judgment (Count II), waiver and estoppel (Count III), bad faith failure to pay health insurance benefits (Count IV), and unfair and deceptive insurance acts and practices (Count V). The complaint also contains a claim to recover benefits under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., (Count VI) and a reservation of rights to amend the complaint to seek exemplary damages.
In lieu of an answer, the Defendants filed a motion to dismiss the state law claims on August 26, 2010. See Docket No. 8.
II. STANDARD OF REVIEW
When considering a motion to dismiss, the Court must construe the complaint liberally and assume all factual allegations to be true. Faibisch v. Univ. of Minn., 304 F.3d 797, 802 (8th Cir. 2002); Goss v. City of Little Rock Ark., 90 F.3d 306, 308 (8th Cir. 1996). Dismissal will not be granted unless it appears beyond a reasonable doubt that the plaintiff can prove no set of facts that would entitle her to relief. Faibisch, 301 F.3d at 802.
Rule 12(b)(6) of the Federal Rules of Civil Procedure mandates the dismissal of a claim if there has been a failure to state a claim upon which relief can be granted. When considering a motion to dismiss under Rule 12(b)(6), the court must accept all factual allegations in the complaint as true. "`However, the complaint must contain sufficient facts, as opposed to mere conclusions, to satisfy the legal requirements of the claim to avoid dismissal.'"Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007) (quoting DuBois v. Ford Motor Credit Co., 276 F.3d 1019, 1022 (8th Cir. 2002)). The court may generally only look to the allegations contained in the complaint to make a Rule 12(b)(6) determination. McAuley v. Fed. Ins. Co., 500 F.3d 784, 787 (8th Cir. 2007). "[I]n considering a motion to dismiss, the district court may sometimes consider materials outside the pleadings, such as materials that are necessarily embraced by the pleadings and exhibits attached to the complaint." Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n. 4 (8th Cir. 2003) (citing Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). "A complaint shall not be dismissed for its failure to state a claim upon which relief can be granted unless it appears beyond a reasonable doubt that plaintiff can prove no set of facts in support of a claim entitling him to relief." Young v. City of St. Charles, Mo., 244 F.3d 623, 627 (8th Cir. 2001).
III. LEGAL DISCUSSION
The Plaintiffs contend ERISA's Safe Harbor provision may apply and keep the Nabors Industries Group Insurance Plan outside the definition of an "employee welfare benefit plan" as defined by 29 U.S.C. § 1002(1). The Defendants dispute this. The Defendants contend the Plaintiff's state law claims are preempted by ERISA. The Plaintiffs argue that the ERISA savings clause saves their claims from preemption.
A. ERISA PREEMPTION
ERISA establishes a comprehensive scheme for regulating the administration of employee welfare benefit plans. Kuhl v. Lincoln Nat'l Health Plan, 999 F.2d 298, 301 (8th Cir. 1993). ERISA applies to both pension and welfare plans, including group health care plans. Id. at 299, 301. ERISA contains a civil enforcement provision which affords plan participants a federal cause of action to recover plan benefits, enforce the plan, and clarify the right to benefits under the plan. 29 U.S.C. § 1132(a)(1)(B); Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147 (1985); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 53 (1987). ERISA also contains a broad-based express preemption clause, 29 U.S.C. § 1144(a), which provides in part that ERISA "shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." See Rush Prudential HMO, Inc., v. Moran, 536 U.S. 355, 364 (2002). A state law based claim for relief "relates to" an employee benefit plan covered by ERISA if it (1) has a connection with or (2) reference to such a plan. See Howard v. Coventry Health Care of Iowa, Inc., 293 F.3d 442, 446 (8th Cir. 2002) (citing Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997) (acknowledging that ERISA's preemption clause is "clearly expansive" and has a "broad scope")). ERISA also contains a savings clause to prevent certain state laws which regulate insurance from being preempted: 29 U.S.C. § 1144(b)(2)(A).
Aside from the Safe Harbor argument, the Plaintiffs do not dispute that the Nabors Industries Group Insurance Plan is an ERISA plan.
1) STATE LAW CLAIMS — COUNTS I — IV
The Plaintiffs' complaint contains state law claims for breach of contract (Count I), declaratory judgment (Count II), waiver and estoppel (Count III), and bad faith (Count IV). The Court has no difficulty concluding these state law claims are preempted by ERISA.
ERISA preempts a wide range of claims for benefits arising under state law including common law claims for breach of contract, breach of fiduciary duties, and fraud in the inducement based on alleged improper processing of a claim for health insurance benefits. Dedeaux, 481 U.S. at 43-47; Howard, 293 F.3d at 446 (finding ERISA preempts state law claims for breach of contract, violation of public policy, and bad faith); Glenn v. Life Ins. Co. of N. Am., 240 F.3d 679, 681 (8th Cir. 2001) (holding ERISA preempted claims for breach of contract and bad faith); Thompson v. Gencare Health Sys. Inc., 202 F.3d 1072, 1073 (8th Cir. 2000) (finding ERISA preempts state common law tort and contract actions including actions for improper claims processing and medical malpractice where the essence of the claim rests on the denial of benefits); Painter v. Golden Rule Ins. Co., 121 F.3d 436, 438-40 (8th Cir. 1997) (finding that ERISA preempted the plaintiff's state law claims for alleged mishandling of her claim for health benefits under a conversion policy); Robinson v. Linomaz, 58 F.3d 365, 368-70 (8th Cir. 1995) (holding ERISA preempted the plaintiff's claims for breach of fiduciary duty, fraud, and negligence); Algren v. Pirelli Armstrong Tire Corp., 197 F.3d 915, 916 (8th Cir. 1999) (finding ERISA preempts state law promissory-estoppel claims).
The common thread running through the complaint is that the Defendants wrongfully denied Todd Hayden health insurance benefits due him under the Nabors Industries Group Insurance Plan. The claims administrator, Blue Cross and Blue Shield of Texas, denied Todd Hayden's request for benefits based upon a policy exclusion relating to alcohol consumption. The complaint makes repeated reference to the Group Insurance Plan and the health insurance policy provided for by the Group Insurance Plan. The entire case would seem to hinge upon the applicability of the exclusion cited by Blue Cross and Blue Shield of Texas. As the claims for breach of contract, declaratory judgment, waiver and estoppel, and bad faith all directly relate to an "employee welfare benefit plan," the Court finds that the state law claims set forth in counts I through IV are preempted by ERISA. See 29 U.S.C. § 1144(a).
2) STATE LAW CLAIMS — COUNT V
Count V of the complaint is a claim for unfair and deceptive insurance acts and practices in violation of N.D.C.C. § 26.1-04-03. The specific violations alleged are all for unfair claim settlement practices as set forth in N.D.C.C. § 26.1-04-03(9). See Docket No. 1, pp. 13-14. The Defendants contend this claim is preempted by ERISA. The Plaintiffs contend ERISA's savings clause, 29 U.S.C. § 1144(b)(2)(A), protects the claim from preemption.
The ERISA savings clause provides that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A). For a state law to be deemed a law which regulates insurance and is thus not preempted by ERISA, the law (1) must be "specifically directed toward entities engaged in insurance," and (2) "must substantially affect the risk pooling arrangement between the insurer and the insured." Ky. Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 341-42 (2003).
The parties agree, and the Court concurs, that N.D.C.C. § 26.1-04-03 meets the first prong of the test. Chapter 26.1-04 of the North Dakota Century Code is specifically directed toward the unfair insurance industry practices and is entitled "Prohibited Practices in Insurance Business." Moreover, Title 26.1 of the North Dakota Century Code is entirely dedicated to the regulation of the insurance industry.
The parties disagree as to whether N.D.C.C. § 26.1-04-03 substantially affects the risk pooling arrangement between the insurer and the insured.
The relevant portion of the statute provides as follows:
9. Unfair claim settlement practices. Committing any of the following acts, if done without just cause and if performed with a frequency indicating a general business practice: a. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue. b. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under insurance policies. c. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies. d. Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear. e. Compelling insureds to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered. f. Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration. g. Attempting settlement or compromise of claims on the basis of applications which were altered without notice to, or knowledge or consent of, insureds. h. Attempting to settle a claim for less than the amount to which a reasonable person would have believed one was entitled by reference to written or printed advertising material accompanying or made a part of an application. i. Attempting to delay the investigation or payment of claims by requiring an insured and the insured's physician to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information. j. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed. k. Refusing payment of claims solely on the basis of the insured's request to do so without making an independent evaluation of the insured's liability based upon all available information.\ l. Providing coverage under a policy issued under chapter 26.1-45 or 26.1-36.1 for confinement to a nursing home and refusing to pay a claim when a person is covered by such a policy and the person's physician ordered confinement pursuant to the terms of the policy for care other than custodial care. Custodial care means care which is primarily for the purpose of meeting personal needs without supervision by a registered nurse or a licensed practical nurse. m. Failure to use the standard health insurance proof of loss and claim form or failure to pay a health insurance claim as required by section 26.1-36-37.1. It is not a prohibited practice for a health insurance company with participating provider agreements to require that a subscriber or member using a nonparticipating provider be responsible for providing the insurer a copy of medical records used for claims processing. N.D.C.C. § 26.1-04-03(9).
A state law substantially affects the risk pooling arrangement when it alters the scope of permissible bargains between insurers and insureds. Miller, 538 U.S. at 338-39 (finding a Kentucky law which prohibited insureds from seeking insurance from a closed network of health care providers in exchange for a lower premium substantially affected the risk pooling arrangement and thus was saved from preemption); UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 364 (1999) (finding a California law which required insurers to pay untimely claims unless the insurer was prejudiced by the delay substantially affects the risk pooling arrangement because it alters the scope of the bargain between the insured and the insurer); Werdehausen v. Benicorp Ins. Co., 487 F.3d 660, 669 (8th Cir. 2007) (finding a Missouri law which barred enforcement of any insurance policy provision which would otherwise exclude coverage if the insurer preauthorized the medical procedure anyway was saved from ERISA preemption because it substantially affected risk pooling). Section 26.1-04-03(9) defines certain practices within the insurance industry as unfair and deceptive. However, N.D.C.C. § 26.1-04-03(9) does not alter the scope of the bargain between the insured and the insurer. The specific practices identified as unfair in N.D.C.C. § 26.1-04-03(9) do not increase the insurer's liability or limit the insurer's ability to deny claims as did the Missouri law in Werdehausen which was saved from preemption. The Court finds that Count V is preempted since risk pooling is not affected by N.D.C.C. § 26.1-04-03(9) and thus the claim is preempted.
It should be noted that it is unclear whether a private cause of action is even available for violation of N.D.C.C. § 26.1-04-03, but the court need not decide that issue as the claim is preempted. Dvorak v. Am. Family Mut. Ins. Co., 508 N.W.2d 329, 333 (N.D. 1993) (declining to decide whether Chapter 26.1-04 creates a private cause of action); Farmer's Union Cent. Exch, Inc. v. Reliance Ins. Co., 675 F. Supp. 1534, 1538 (D.N.D. 1987) (predicting North Dakota would not recognize a private cause of action for violation of Chapter 26.1-04).
B. SAFE HARBOR
ERISA defines an "employee welfare benefit plan" as "any plan, fund or program . . . established or maintained by an employer" for the purpose of providing medical and other benefits. 29 U.S.C. § 1002(1). The Secretary of the Department of Labor promulgated certain regulations in order to clarify the meaning of the term "employee welfare benefit plan." 29 C.F.R. 2510.3-1(a). These regulations exclude certain group insurance plans from ERISA's definition of "employee welfare benefit plan." This exception, known as the Safe Harbor provision, states as follows:
(j) Certain group or group-type insurance programs. For purposes of Title I of the Act and this chapter, the terms "employee welfare benefit plan" and "welfare plan" shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which
(1) No contributions are made by an employer or employee organization;
(2) Participation [in] the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.29 C.F.R. § 2510.3-1(j).
All four of the Safe Harbor criteria must be satisfied in order for a plan to be excluded from ERISA coverage. Thompson v. Am. Home Assurance Co., 95 F.3d 429, 435 (6th Cir. 1996). A failure to meet any one of the criteria renders the exception inapplicable. Dam v. Life Ins. Co. of N. Am., 206 Fed. Appx. 626, 627 (8th Cir. 2006).
The Plaintiffs contend the Safe Harbor provision may apply but that discovery is necessary before any analysis can be conducted. They point out that the Defendants have offered no documentation which might assist with the Safe Harbor analysis. The Plaintiffs conclude the motion is premature and suggest the Court allow the discovery process to be completed before ruling on the motion.
The Defendants offer no argument, analysis, or explanation as to Safe Harbor criteria one, two, and four. They claim criteria three, endorsement of the program, is the critical provision. They argue that the Nabors Plan itself, which is in the record, demonstrates Nabors endorsement of the Plan and thus the inapplicability of the Safe Harbor provision.
The record before the Court is sparse. There is little Eighth Circuit caselaw to guide the Court's analysis. In Dam the Eighth Circuit found the Safe Harbor provision did not apply because the employer had contributed to the insurance program under which the employee sought benefits. Dam, 206 Fed. Appx. at 627. But Dam offers little guidance as to whether the actions of an employer amount to an endorsement. The Sixth Circuit has determined that a finding of endorsement is proper if, after examining all the relevant circumstances, there is some factual showing on the record of substantial employer involvement in the creation or administration of the plan. Thompson, 95 F.3d at 436 (citingJohnson v. Watts Regulator Co., 63 F.3d 1129 (1st Cir. 1995)). The relevant circumstances should be examined from the employee's point of view. Id. Merely recommending the program is not enough.Id. When the employer plays an active role in determining which employees will be eligible for coverage, or negotiates the terms of the policy, a finding of endorsement is appropriate. Id. Where the employer is named as the plan administrator a finding of endorsement may be appropriate. Id.
In this case it is unknown whether Nabors Industries played any role in crafting the terms of the plan. However, the plan is titled, "Nabors Industries Group Insurance Plan," which is consistent with endorsement. Nabors Industries is named as the plan administrator. The plan states at paragraph 4.3 that "the Administrator shall be the named fiduciary to the Plan within the meaning of Section 402(a)(2) of ERISA." See Docket No. 9-1, p. 6. The plan gives the administrator the authority to determine all questions arising under the plan including eligibility for benefits. See Docket No. 9-1, p. 6. The plan reserves to Nabors Industries the right to amend, suspend, or terminate the plan.See Docket No. 9-1, p. 7. Based on the language of the plan itself, the Court concludes that Nabors Industries has endorsed the plan and the Safe Harbor provision does not apply.
C. ATTORNEY FEES
As the Court has explained, the Plaintiffs' state law claims are preempted by ERISA. Therefore, the Plaintiffs will not be able to recover attorney fees under state law. However, the Plaintiffs have also asserted a claim for relief under ERISA. ERISA provides for the recovery of attorney fees. See 29 U.S.C. § 1132(g)(1). Should the Plaintiffs prevail on their ERISA claim, the Court may, in its discretion, award reasonable attorney fees.
D. PUNITIVE DAMAGES
In paragraph LI of the complaint, the Plaintiffs reserved the right to move to amend the complaint to seek punitive damages. North Dakota law provides that a plaintiff seeking an award of punitive damages must first move to amend the complaint and make a sufficient evidentiary showing of entitlement. See N.D.C.C. § 32-03.2-11. The Plaintiffs have not yet sought leave to amend their complaint. As the Plaintiffs' state law claims have been found to be preempted by ERISA, there would be no basis for doing so. The Court would note that punitive damages are not available under ERISA. See Howe v. Varity Corp., 36 F.3d 746, 752 (8th Cir. 1994) (finding ERISA provides only equitable relief and punitive damages are not an equitable remedy); Brant v. Principal Life Disability Ins. Co., 6 Fed. Appx. 533, 535 (8th Cir. 2001) (stating plan participants have no right to recover punitive damages under ERISA).
IV. CONCLUSION
The Court finds that the Plaintiffs' state law claims are preempted by ERISA. Accordingly, the Court GRANTS the Defendants' motion to dismiss the state law claims (Docket No. 8). The Defendants will have fourteen days from the date of this order to file their answer to the remaining ERISA claim. See Fed.R.Civ.P. 12(a)(4).