Opinion
Case No. 98 C 0562
March 27, 2000.
ALVIN R. BECKER, Esq., CHRISTOPHER A. WHITE, Esq., Beermann, Swerdlove, Woloshin, Barezky, Becker, Genin London, Chicago, IL., Attorneys for Plaintiff.
WILLIAM G. BEATTY, Esq., MARILYN M. REIDY, Esq., TODD M. SAZANECKI, Esq., Johnson Bell, Ltd., Chicago, IL., Attorneys for Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff, the Estate of Judith Cencula, by Arthur Cencula, Sr., Judith's father, as Independent Administrator, filed this action against Defendant, John Alden Life Insurance Company ("JALIC"), to recover unpaid medical benefits under the terms of a group-insurance plan issued by JALIC to Judith's former employer, Cencula Sons, pursuant to Section 502(a)(1)(B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132 (a)(1)(B) . Plaintiff also named as defendants Quest Financial Group ("Quest") and Patrick Fatigato who aided in Cencula Sons' procurement of insurance coverage from JALIC. Before the Court are motions for summary judgment filed by all parties, and a motion to dismiss the third-party complaint by third-party defendants Arthur Cencula, Sr. and Cencula Sons Builders. For the reasons below, this Court grants the motions for summary judgment of Plaintiff and Defendants Quest and Fatigato, but denies Defendant JALIC's motion for summary judgment, and grants third-party defendants' motion to dismiss.
Defendant John Alden Contract Construction Group Trust was voluntarily dismissed from this action.
All parties have consented to have this Court conduct any or all proceedings, and order the entry of judgment in this case, as provided by Local Rule 73.1. See 28 U.S.C. § 636 (c).
I. Background
Plaintiff filed a five-count complaint directing Counts I through III against Defendant JALIC and Counts VI and V against Defendants Quest and Fatigato. This Court has dismissed Count II. Count I, a breach of contract claim, alleges that JALIC is liable for unpaid medical benefits for medically necessary charges incurred by Ms. Cencula through December 26, 1996. Count III alleges that, in the alternative, JALIC is estopped from denying Plaintiff's entitlement to reimbursement as a result of representations of coverage made by JALIC during an eleven-month period. Counts IV and V allege breach of duty and breach of contract claims against Quest and Fatigato.In January of 1992, Cencula Sons made a request for participation in the John Alden Contract Construction Group Trust ("Group Trust I), seeking major medical coverage for its seven employees through JALIC. (Pl.'s 12(M), Ex. A). The Group Trust and JALIC accepted the request for participation, and coverage was extended to Cencula Sons and its employees in March of 1992. The request for participation stated:
The following facts are taken from the parties' 12(M) and 12(N) statements (now LOCAL RULE 56.1), hereafter "Pl.'s 12(M)" and "JALIC's 12(N)," respectively.
PARTICIPATION REQUIREMENTS
Firms with fewer than six eligible employees: All eligible employees must enroll.
Firms with six or more eligible employees: At least 50% of all eligible employees must enroll.
Once approved, the firm must continue to meet these requirements to be able to continue the group insurance plan.
(Pl.'s 12(M), Ex. A, at 2).
On or about November 10, 1995, Judith Cencula began working for Cencula Sons. On December 7, Cencula Sons requested that Judith be added as an insured under the Certificate. JALIC and the Group Trust accepted and welcomed Judith to the Plan. On December 28, Cencula Sons requested that coverage be canceled for six of its eight covered employees. The request specifically asked that William and Judith Cencula remain enrolled in the Group Trust.
Meanwhile, Cencula Sons selected a different insurance company to provide major medical insurance for the six employees removed from the Group Trust. Patrick Fatigato, a licensed insurance broker employed by Quest Financial Group, provided advice in connection with that selection.
On November 26, 1996, JALIC notified Cencula Sons by letter that it was terminating coverage for Judith retroactive to January 1, 1996. (Pl.'s 12(M), Ex. F). The letter stated that the reason for termination was Cencula Sons' failure to continue to meet certain minimum participation requirements. JALIC asserted that a participating employer to the Group Trust must meet these requirements at all times for continued coverage. JALIC also retained all premiums paid since January 1, and requested from Ms. Cencula's medical providers refunds of payments by JALIC since January 1.
From the date Judith Cencula was added to the Group Policy to the date of her death on March 14, 1997, Judith incurred necessary medical charges in connection with her treatment against cancer. During all relevant times, Cencula Sons timely paid all premiums requested by and due to JALIC under the Certificate.
II. Discussion
A. Summary Judgment Standard
Summary judgment is proper only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In ascertaining whether summary judgment is appropriate, the Court must view the evidence, and draw all reasonable inferences therefrom, in the light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Kennedy v. United States, 965 P.2d 413, 417 (7th Cir. 1992). If the non-movant bears the burden of proof on an issue, however, he or she may not simply rest on the pleadings, but rather, must affirmatively set forth specific facts establishing the existence of a genuine issue of material fact. See Celotex, 477 U.S. at 322-26.
Summary judgment is appropriate where the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. Consequently, motions for summary judgment must be analyzed in light of both the applicable substantive law and the question of whether a reasonable jury could return a verdict in the non-movant's favor. See Checkers, Simon Rosner v. Lurie Corp., 864 F.2d 1338, 1344 (7th Cir. 1988). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-movant party, there is no genuine issue for trial, " and summary judgment must be granted. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
B. JALIC Is Liable For Charges Incurred Through December 26, 1996.
Plaintiff argues that summary judgment in its favor on Count I is proper because JALIC had no contractual authority to automatically and retroactively terminate coverage. Alternatively, Plaintiff seeks summary judgment on Count III, contending that JALIC's various actions and inactions estop it from denying coverage. Defendant JALIC responds that the contract provides that when a participating employer ceases to meet the minimum participation requirements, coverage stops automatically. Alternatively, JALIC argues that there are no enforceable claims against Ms. Cencula's Estate for unpaid medical bills, and therefore the Estate has no claim for damages.
In resolving disputes over the denial of benefits under an ERISA-governed plan, the court must apply the federal common law rules of contract interpretation. See Wahlin v. Sears, Roebuck Co., 78 F.3d 1232, 1235 (7th Cir. 1996); Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429, 431 (7th Cir. 1994). "Those rules direct us to interpret ERISA plans in an ordinary and popular sense as would a person of average intelligence and experience. . . ." Brewer v. Protexall Inc., 50 F.3d 453, 457 (7th Cir. 1995) (quoting Bullwinkel, 18 F.3d at 431) Additionally, "when plan terms are ambiguous, we construe them strictly in favor of the insured." McNeilly v. Bankers United Life Assur. Co., 999 F.2d 1199, 1201 (7th Cir. 1993). "A term is ambiguous if it is subject to reasonable alternative interpretations." Bechtold v. Physicians Health Plan, 19 F.3d 322, 325 (7th Cir. 1994).
JALIC has identified no contract provision which explicitly makes coverage continent upon compliance with the participation requirements. The Participation Requirements on each Request for Participation form states:
PARTICIPATION REQUIREMENTS
Firms with fewer than six employees: All eligible employees must enroll.
Firms with six or more eligible employees: At least 80% of all eligible employees must enroll.
Once approved, the firm must continue to meet these requirements to be able to continue the group insurance plan.
(Pl.'s 12(M), Ex. A, at 2). A "Participating Employer" is defined in the Policy as follows:
"Employer" and "Participating Employer" means each firm or other entity which:
a. has subscribed to the Trust, shown as Policyholder, on the contract face page; and
b. is providing a group insurance plan for its insured employees under this contract.
(JALIC's 12(N), Ex. A). The Certificate also provides that insurance is provided contingent upon the "Employer's continuing to be a Participating Employer under the Group Policy and under the Trust that is the Group Policyholder . . . ." ( Id., Ex. B, at 40).
JALIC repeatedly asserts that when Cencula Sons removed six of eight employees from enrollment, it no longer met the participation requirements, and therefore it was no longer a "Participating Employer." But nothing in the Group Policy or Certificate explicitly makes that connection. The Policy makes coverage contingent upon the employer's continuing to be a Participating Employer, but the Policy's definition of Participating Employer does not require as a condition of continued coverage compliance with the participation requirements. The Policy simply fails to exact a consequence for a participating employer's non-compliance with the minimum participation requirements. This apparent oversight by the Plan's drafters is fatal to JALIC'S unsupported attempt to link coverage with the number of enrollees.
In addition, to the extent that there is any ambiguity as to whether coverage is continent upon compliance with the participation requirements, it is resolved strictly in favor of the insured. The Policy defines a Participating Employer as a firm which has subscribed to the Group Trust and is providing a group insurance plan. The Request for Participation form states that a firm must continue to meet the participation requirements to be able to continue the group insurance plan. However, JALIC has not identified a contract term that provides that a firm which fails to meet the participation requirements is no longer providing a group insurance plan. Again, the contract simply fails to exact a consequence for a firm's failure to comply with the participation requirements. This creates an ambiguity that, when strictly construed in favor of the insured, compels the conclusion that a firm's non-compliance with the participation requirements is not fatal to continued coverage.
Even if continued coverage were contingent upon compliance with the participation requirements, JALIC identifies nothing in the policy which authorizes automatic termination of coverage when an employer ceases to satisfy the participation requirements. The Certificate vests JALIC with the discretion to terminate coverage upon 31 days advance written notice:
We have the right to terminate all insurance with respect to Your Employer on 31 days advance written notice to Your Employer. If We do so, Your insurance, as well as the insurance for all other Employees of Your Employer, will stop as indicated in the "Termination of Insurance" section.
( Id. (emphasis added)). If JALIC chooses to terminate all insurance, coverage ceases as provided in the "Termination of Insurance" section:
Your insurance will automatically stop on the earliest of the:
* * *
5. Date Your Employer ceases to be a Participating Employer under the Group Policy or under the Trust which is the Group Policyholder.
( Id. at 41-42 (italics in original)). The 31-day advance written notice requirement is confirmed in the Group Policy, which controls to the extent of any conflict with the Certificate:
TERMINATION OF EMPLOYER'S PARTICIPATION
* * *
We must give written notice:
a. to the Owner; and
b. to each Employer;
at least 31 days before we cancel an Employer's participation.
( Id. (underlining in original)). It also requires JALIC to give similar written notice "before we cancel the contract." ( Id.)
The 31-days advance notice and automatic termination provisions are in irreconcilable conflict. The policy requires JALIC to give 31 days advance written notice of termination, but goes on to describe circumstances in which insurance stops automatically. The Certificate clearly says that if JALIC exercises its right to terminate all insurance on 31-days advance written notice, insurance will stop as indicated in the "Termination of Insurance" section, which describes circumstances in which insurance stops automatically. The only way to make sense of these provisions is to construe them such that insurance stops automatically 31 days after JALIC provides written notice of termination. JALIC urges that these provisions are not in conflict because the advance notice provision is a general provision, and the automatic termination provision is a specific provision, and where a contract contains both general and specific provisions relating to the same subject, the specific provision controls. But the advance termination provision permits no such reading. Aside from referring the reader to the "Termination of Insurance" section, there is nothing in the advance termination provision which permits JALIC to terminate insurance without 31 days advance written notice to the employer. Those circumstances are described in the "Termination of Insurance" section which clearly conflicts with the advance-notice provision that refers to it. Thus, strictly construing any ambiguity in the advance-notice and automatic-termination provisions in favor of the insured, both the Certificate and the Group Policy permit JALIC to terminate insurance only after giving 31 days advance written notice to the employer, at which time the insurance stops "automatically" without any further action by JALIC.
Nor does Policy Rider #9 to the Group Policy, executed in June of 1996, authorize JALIC to terminate coverage automatically. The amendment provides:
With respect to Small Employers, . . . we have the right to cancel the Employer's participation under the contract on any policy anniversary date for the following reasons:
At all relevant times, Cencula Sons was a "Small Employer" as defined by Illinois law. See 215 ILCS 5/351B-3(a)
* * *
d. for the Small Employer's failure to meet participation or contribution requirements; . . . . .
(JALIC's 12(N), Ex. A (Policy Rider 9) (emphasis added)). This provision vests with JALIC the discretion to terminate an employer's participation on any policy anniversary date, but on no other date.
Termination of insurance coverage occurred on either of the following dates. Under amendment #9 to the Group Policy, the earliest JALIC could have exercised its discretion to discontinue Cencula Sons' participation in the Group Policy was March of 1997. It is undisputed that coverage was extended to Cencula Sons and its employees in approximately March of 1992. (JALIC's 12(N), ¶ 8). The amendment went into effect in June of 1996. Therefore, the next policy anniversary date was March of 1997. under the Group Policy, the earliest date that insurance coverage could have terminated was December 26, 1996, 31 days after JALIC sent to Cencula Sons written notice of its intent to terminate coverage. (Pl.'s 12(M), Ex. F). Therefore, taking the earlier of the two dates, JALIC remains liable under the Group Policy for medically necessary charges incurred by Judith Cencula through December 26, 1996. C. JALIC Is Liable For the Unpaid Medical Bills.
The amount of charges incurred is disputed by the parties, so summary judgment is granted in Plaintiff's favor on the issue of JALIC's liability only.
JALIC argues that regardless of what the Group Policy requires, it cannot be held liable for any claim of damages by the Estate because it has no legitimate claim for damages. JALIC contends that no enforceable claims have been timely filed against the Estate for the recovery of any unpaid medical benefits, so therefore any recovery by the Estate in this case would result in a windfall since the Estate would be under no legal obligation to pass along any recovery to Ms. Cencula's medical providers. In essence, JALIC argues that its contractual obligation to pay for medical benefits is discharged if the insured's legal obligation is discharged by a subsequent event — in this case, the apparent delay by Ms. Cencula's medical providers in filing a timely claim against her Estate. JALIC cites no legal or contractual authority in support of this untenable position.
There is nothing in the Group Policy or Certificate which provides protection against an insured's recovery of benefits for which it is no longer legally obligated to pay. The Certificate provides:
We will pay Major Medical Benefits each year in connection with Covered Medical Charges incurred while insured, as stated in the Schedule of Major Medical Benefits as shown on Your Benefit Summary, subject to all applicable provisions of this Certificate and any attached Riders.
(JALIC's 12(N), Ex. B, at 19). "Covered Medical Charges" are those which are "Medically Necessary and incurred by You, or Your insured Dependent, while insured. A charge is deemed incurred as of the date of the service, treatment or purchase giving rise to the charge." ( Id.) They do not include any charges "[i]n excess of such charges as would be made in the absence of this insurance." ( Id. at 21). The Certificate also provides for coordination of benefits:
We will coordinate your Medical and Dental Benefits (it applicable) with benefits payable under other Plans.
* * *
Coordination means that benefits are paid so that no more than 100% of Your necessary, reasonable, and customary expenses will be covered under the combined benefits from all other plans."
(Id. at 25). JALIC does not deny that the claims at issue are "medically necessary." It does not contend that the charges incurred are in excess of such charges as would be made in the absence of the insurance. Nor does it identity another plan with which coordination of benefits would have been required. In short, JALIC has identified nothing in the contract which avoids creating a double or "windfall" recovery to an insured.
Though JALIC suggests that to permit a "windfall" recovery here is contrary to public policy, in fact the opposite is true. If an insurance company's obligation to pay were discharged, for example, because a medical provider loses its right, through its own delay, to collect unpaid medical benefits from the insured, or because a relative or friend of the insured pays the outstanding medical bills, insurance companies would simply delay payment of claims in hopes that a subsequent event might discharge their obligation to pay. JALIC is bound by the terms of the Plan, which provides no protection against recovery of benefits for which an insured has no further legal obligation to pay. Accordingly, JALIC is liable for the covered medical charges incurred by Ms. Cencula, regardless of whether her Estate has a legal obligation to pay for them. JALIC's motion for summary judgment is denied.
D. Fatigato and Quest Are Entitled To Summary Judgment.
Counts IV and V are directed against Quest Financial Group and Mr. Fatigato, alleging breach of duty and breach of contract. The complaint avers that Mr. Fatigato advised Cencula Sons to move all of its employees except Judith and William Cencula to a lower-cost policy issued by a different insurer. Plaintiff also alleges that Mr. Fatigato should have known that removing employees from the JALIC group certificate would have jeopardized Cencula Sons' participation in the Plan.
In view of this Court's granting summary judgment in Plaintiff's favor, Plaintiff's claims against Mr. Fatigato and his employer are moot. Because this Court concludes that JALIC had no contractual authority to terminate the insurance automatically, any alleged representations made by Mr. Fatigato could not have jeopardized Ms. Cencula's participation in the Plan. Therefore, Quest and Fatigato's motion for summary judgment is granted to the extent of their non-liability for breach of duty (Count IV) and breach of contract (Count V), but denied without prejudice as to the fees, costs, and sanctions they seek.
E. JALIC's Third-Party Complaint Must Be Dismissed.
JALIC filed a third-party complaint against Arthur Cencula, Sr. and Cencula Sons Builders (hereafter "Cencula"), seeking contribution for their alleged breach of fiduciary duty which caused the termination of Ms. Cencula's coverage under the Plan and the accrual of unpaid medical expenses. The third-party complaint alleges that Cencula breached a fiduciary duty when it asked JALIC to remove six employees from the group trust, a request which, once fulfilled, left the plan in violation of the participation requirements.
JALIC's third-party complaint is based on the assumption that Cencula's removal of six employees somehow jeopardized Ms. Cencula's coverage under the Plan. However, as we have previously discussed, Cencula's non-compliance with the participation requirements did not terminate coverage automatically. Therefore, Cencula could not have jeopardized Ms. Cencula's coverage by removing six employees from the group trust. Cencula's motion to dismiss the third-party complaint is granted.
III. Conclusion
For the foregoing reasons, this Court grants Plaintiff's motion for summary judgment [60-1] on the issue of liability only but denies it in all other respects, grants-in-part and denies-in-part Defendants Quest and Fatigato's motion for summary judgment [52-1], denies Defendant JALIC's motion for summary judgment [49-1], and grants Third Party Defendants Arthur Cencula, Sr., and Cencula Sons Builders' motion to dismiss the third-party complaint [42-1]
ENTER ORDER: