Opinion
No. 04-2068 Ma/V.
February 20, 2004
ORDER GRANTING PLAINTIFF'S REQUEST FOR PRELIMINARY INJUNCTION
Before the Court is Plaintiff Bradley Larschan's February 10, 2004, request for a preliminary injunction. The court held an evidentiary hearing on February 11, 2004. In response to questions raised at the hearing, Larschan filed a supplemental brief in support of his request on February 19, 2004, and Defendant Aetna Life Insurance Company ("Aetna") responded on February 20, 2004. For the following reasons, the court GRANTS Plaintiff's request for injunctive relief.
This case involves a group of churches that sought to obtain health insurance coverage for pastors, church employees, and their dependents. Five denominations were included. The churches sought coverage as a "church plan" as defined by 29 U.S.C. § 1002(33), a provision of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Church plans are exempt from ERISA regulation. The churches approached Aetna, and Aetna agreed to underwrite major medical coverage on a fully-funded basis. (Am. Compl. at 3.) Pastors and church employees participated in a policy that was given the marketing name "The Church Plan 1:3.33," ("Church Plan") which went into effect on February 1, 2003. Aetna has received over $1.5 million in premiums under the policy.
In a letter dated November 25, 2003, Robert Wolfkiel, Aetna's vice president for sales and marketing, informed the Church Plan that it would not renew the Church Plan's major medical insurance effective February 1, 2004. The letter states that the reason for non-renewal is that, under Aetna's group eligibility requirements, associations can be offered insurance only if they are "employer-based, and the organization must not be formed solely for the purpose of obtaining health coverage." (Am. Compl. Ex. M.) It states that "[o]ur records indicate that the association does not have an employer-employee relationship, and is a group of churches of various denominations who have banded together for the purpose of insurance. As a result, the group is not eligible for coverage and will be non-renewed effective February 1, 2004." (Id.)
Larschan wrote to Wolfkiel on December 1, 2003, stating that the Church Plan was intended to be a church plan under ERISA, and was never intended to be set up as an association or a conventional employer-employee plan. (Am. Compl. Ex. O.) He requested that the structure be changed. William Manning, Aetna's regional general counsel, wrote to Larschan on January 9, 2004, stating that Aetna believed that the representations in Larschan's December 1 letter were different than the representations made to Aetna at the time of underwriting. (Am. Compl. Ex. S.) Manning stated, "it does not appear that any fact set forth in [the December 1 letter] indicates that the Church Plan qualifies under Aetna's criteria as an eligible group plan." (Id.) Manning also stated that Aetna had no responsibility to bring the "group" into compliance with ERISA. (Id.) Also in December 2003, Plaintiff had requested a claims history, but Defendant did not supply it until February 11, 2004, at the preliminary injunction hearing.
Plaintiff filed suit in Shelby County Chancery Court, and on January 28, 2004, the state court issued a temporary restraining order prohibiting Aetna from terminating the coverage. (Am. Compl. ¶ 67.) Defendant removed to this court on February 4, 2004, asserting that diversity jurisdiction and federal question jurisdiction exist.
The court agrees that jurisdiction exists. Plaintiff Larschan is a resident of Tennessee. Aetna is a Pennsylvania corporation whose registered office is in Blue Belle, Pennsylvania. (Am. Compl. at ¶ 2.) Although the amended complaint does not seek a specific dollar amount, Defendant asserts, and Plaintiff does not dispute, that the amount in controversy is at least $75,000. Thus, jurisdiction exists under 28 U.S.C. § 1332.
At the inception of the case, the named plaintiff was "The Church Plan 1:3.33." After the evidentiary hearing, at which the court raised concerns about whether "The Church Plan 1:3.33" was a legal entity capable of suing, the complaint was amended to name Larschan as the plaintiff. However, in identifying the parties, the amended complaint states that "Plaintiff is a trust established for the benefit of the Churches, and their pastors and church employees in multiple states, through which a number of insurance companies provide a suite of fully-funded insurance products to the Insureds, with its principal office at 1326 Hardwood Trail, Cordova, TN 38016." (Am. Compl. ¶ 1.)
Plaintiff brings seven claims: (1) breach of T.C.A. § 56-7-2806 and/or 29 U.S.C. § 1183; (2) breach of contract; (3) fraud; (4) breach of the duty of good faith and fair dealing; (5) promissory estoppel; (6) negligence; and (7) breach of fiduciary duty. The gravamen of Plaintiff's complaint is that Defendant improperly structured the policy at issue, failing to create a "church plan" within the meaning of ERISA as requested, thus breaching its contract with the insureds. Plaintiff also asserts that Defendant breached the duty of good faith and fair dealing by failing to provide Plaintiff with a claims history, which is necessary to find alternate insurance, in a timely fashion. Plaintiff requests an injunction requiring Aetna to continue the insurance coverage at the current premium for an additional two months after it receives a claims history.
At the hearing, Defendant provided Plaintiff with a claims history. Plaintiff now seeks a claims history that does not include overhead and that lists the information for each denomination separately.
In determining whether to issue a preliminary injunction, the court considers: 1) whether the movant has a strong likelihood of success on the merits; 2) whether the movant would otherwise suffer irreparable injury; 3) whether issuance of a preliminary injunction would cause substantial harm to others; and 4) whether the public interest would be served by the issuance of a preliminary injunction. USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94, 98 (6th Cir. 1982). These factors are to be balanced; they are not prerequisites that must be satisfied. In re Eagle-Pitcher Indus., Inc., 963 F.2d 855, 859 (6th Cir. 1992).
Plaintiff submits that it is impossible to determine at this stage of the litigation whether state law or ERISA applies. Evidence presented at the hearing indicates that the parties, including Aetna's agent Philip Parimore, intended to create a "church plan" exempt from ERISA regulation. At this stage, it is not necessary to determine the merits of the case. However, for the purposes of deciding whether to issue an injunction, the court makes a preliminary determination that the plan in question can be read as a church plan in order to give effect to the parties' intent. Because church plans are exempt from ERISA, the court will consider state law for the purposes of this order.
Tennessee Code Annotated § 56-7-2806 provides that "[i]f a health insurance issuer offers health insurance coverage in the small or large group market in connection with a group health plan, the issuer must renew or continue in force such coverage at the option of the plan sponsor of the plan except as provided in this section." Among other exceptions, an insurer can decline to renew a group policy if "the plan sponsor has performed an act or practice that constitutes fraud or made an intentional misrepresentation of material fact under the terms of the coverage." T.C.A. § 56-7-2806.
Plaintiff argues that this exception does not apply, and that Defendant violated § 56-7-2806 by declining to renew the coverage. Specifically, Plaintiff argues that the insureds did not make any intentional misrepresentation to Aetna at the time of underwriting. A December 2002 letter from Parimore to Aetna account Executive John Maki, describing the kind of plan sought, supports that argument. (Am. Compl. Ex. C.)
Defendant responds that the Tennessee statute does not give rise to a private right of action. It asserts that the state statute was modeled on the federal Health Insurance Portability, Availability and Renewability Act of 1996 ("HIPAA"), and that HIPAA creates no private right of action. See Swift v. Lake Park High Sch. Dist. 108, 2003 WL 22388878, at *4 (N.D. Ill. Oct. 21, 2003). As Plaintiff argues, however, "[t]he law is well-established that `any statute applicable to an insurance policy becomes part of the policy and such statutory provisions override and supersede anything in the policy repugnant to the provisions of the statute.'" Sherer v. Linginfelter, 29 S.W.3d 451, 453-54 (Tenn. 2000) (quoting Hermitage Health Life Ins. Co. v. Cagle, 420 S.W.2d 591, 594 (Tenn. 1967)). Thus, Plaintiff's statutory claim is more properly characterized as a breach of contract claim. Because the evidence presented thus far tends to indicate that Plaintiff did not misrepresent material facts when seeking insurance coverage, Plaintiff has demonstrated a substantial likelihood of success on that claim.
Plaintiff also argues that Defendant's refusal to renew the policy, refusal to deal with Plaintiff to correct the structural problem in the plan, and refusal to give Plaintiff a claims history, which would allow Plaintiff to seek alternative coverage, amount to a breach of fiduciary duty and a breach of the duty of good faith and fair dealing. Plaintiff is correct that "a contract of insurance is one requiring utmost good faith on the part of an insured and insurer." Tallent v. Tennessee Farmers Mut. Ins. Co., 785 S.W.2d 339, 340 (Tenn. 1990). Given Plaintiff's factual allegations, the court finds that Plaintiff has a substantial likelihood of success on the merits on those claims as well. Further, the court finds that Plaintiff and the insureds will suffer irreparable harm in the absence of an injunction, that granting the injunction will not cause substantial harm to Aetna, and that the public interest is served by the issuance of an injunction.
In the event an injunction is granted, the parties dispute its proper terms. Specifically, Aetna seeks to set a premium that is eighty-one percent higher than the original premium, and it has provided the declaration of Stephen Kadlubowski, an Aetna Underwriting Manager, who stated that he calculated the renewal rates in the same way he does in the normal course of business, and that he used the entire claims history for the Church Plan. (Kadlubowski Dep. at ¶¶ 3, 4.) Plaintiff objects, arguing that the proposed premium is "outrageous and arbitrary," and that Aetna should not be allowed to profit from its own wrongdoing. Sitting as a court of equity, and having decided that Plaintiff is likely to prevail on his claims of breach of contract and breach of the duty of good faith and fair dealing, the court finds that it would be inappropriate to allow Aetna to charge the increased premium.
For the foregoing reasons, Plaintiff's request for preliminary injunction is GRANTED. The terms of the injunction are as follows:
Plaintiff also requested an additional hearing two weeks before the expiration of the preliminary injunction. This request is denied.
1. Defendant is ordered, on or before February 27, 2004, to provide Plaintiff a copy of its claims history from February 1, 2003, through January 31, 2004, separated by denomination and reflecting the actual claims paid and without any overhead or other expenses.
2. Defendant is ordered to extend the group health insurance to the Church Plan for a period of eight weeks, beginning on February 20, 2004, and ending on April 16, 2004. Defendant must charge the original premium charged under the Church Plan.
3. This injunction is conditioned on Plaintiff's making timely payments of monthly premiums under the Church Plan.
4. This injunction is also conditioned on Plaintiff's posting a bond in the amount of $230,000.