Summary
holding claims of Deceptive Trade Practices Act and breach of an alleged duty of good faith and fair dealing relating to the denial of benefits subject to ERISA are preempted by ERISA
Summary of this case from Stiltz v. Humana Inc.Opinion
CIVIL ACTION NO. 3:01-CV-1445-K
May 29, 2003
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant John Alden Life Insurance Company's motion for summary judgment. For the reasons stated below, the Court GRANTS Defendant's motion.
I. Background
The facts material to this case are undisputed. In September 1994, John Alden Life Insurance Company ("JALIC") issued a group major medical insurance policy, Number 838359 ("Group Policy"), to Allied Reaction Systems, Inc. ("Allied"). As a dependent insured of Allied employee Vernon Roseman, Nickolas Powell ("Powell") was eligible for coverage under the Group Policy.
Powell received inpatient treatment for drug and alcohol abuse at Sundown Ranch, Inc. ("Sundown Ranch") from January 4, 2001 to March 30, 2001. JALIC's external review organization determined that Powell's inpatient treatment at Sundown Ranch was not medically necessary; consequently, JALIC denied precertification of treatment by letter dated January 9, 2001. In Level I of Powell's appeal, JALIC's external review organization again determined that no portion of Powell's treatment at Sundown Ranch was medically necessary. Powell appealed to an independent review organization, which found that treatment was medically necessary for the period from January 4, 2001 to January 9, 2001. Consequently, JALIC paid benefits in the amount of $1,148.00 to Sundown Ranch for the portion of treatment found to have been medically necessary. The total amount of benefits payable under the Group Policy by JALIC had the entire treatment been deemed medically necessary would have been $20,559.00.
II. Summary Judgment Standards
Summary judgment is appropriate when the pleadings, affidavits and other summary judgment evidence show that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-25. Once a movant makes a properly supported motion, the burden shifts to the nonmovant to show that summary judgment should not be granted; the nonmovant may not rest upon allegations in the pleadings, but must support the response to the motion with summary judgment evidence showing the existence of a genuine fact issue for trial. Id. at 321-25; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-57 (1986). All evidence and reasonable inferences must be viewed in the light most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
III. ERISA Preemption
The Employee Retirement Income Act of 1974 ("ERISA") supersedes any state law that "relates to," an employee benefit plan. 29 U.S.C. § 1144 (a). The parties do not dispute that the Group Policy is an "employee benefit plan" as defined by ERISA, or that Powell was covered under the Group Policy. Sundown Ranch argues JALIC's determination that the treatment was not medically necessary was incorrect and the subsequent denial of full benefits was consequently improper.
Sundown Ranch asserts state law claims of estoppel, breach of contract, violation of Article 21.21 of the Texas Insurance Code, DTPA violation, tortious interference with a contractual relationship, breach of good faith and fair dealing, misrepresentation, and negligent misrepresentation. These state law claims stem from the denial of benefits by the administrators of an ERISA plan for which Sundown Ranch seeks to recover. Presumably, because these state law claims "relate to" an ERISA plan, they are preempted under ERISA. See id. However, section 1144(b)(2)(a) provides that state laws which regulate insurance are saved from preemption. 29 U.S.C. § 1144 (b)(2)(A). In a recent case, the United States Supreme Court held that for section 1144(b)(2)(A) to save a state law from ERISA preemption, it must (1) be "specifically directed toward entities engaged in insurance," and (2) substantially affects the risk pooling arrangement between insurer and insured. Kentucky Assoc. of Health Plans, Inc., et al. v. Miller, 123 S.Ct. 1471, 1479 (2003). After careful review, the Court concludes that none of the state laws asserted by Sundown Ranch in its claims meet both those requirements. Therefore, Sundown Ranch's state law claims are subject to preemption under ERISA. See 29 U.S.C. § 1144 (a), (b)(2)(A).
Sundown Ranch argues its claims of misrepresentation under the Texas Insurance Code and negligent misrepresentation under Texas common law are not preempted under ERISA, citing Transitional Hospitals Corp. v. Blue Cross and Blue Shield of Texas, Inc., 164 F.3d 952 (5th Cir. 1999), and Dallas County Hosp. d/b/a Parkland Memorial Hosp. v. Associates Health and Welfare Plan, Civil Action No. 99-CV-2746G (N.D. 2000). These cases can be easily distinguished from the instant case.
In both Transitional and Dallas County Hospital, the hospitals' claims against the defendant-insurers were for the alleged misrepresentation regarding the existence of coverage. The defendant-insurers allegedly knowingly misrepresented the policy in each case as covering treatment when in fact it did not. In the instant case, the existence of coverage is not an issue; both parties agree it exists. (JALIC denied coverage twice and eventually paid benefits for a portion of Powell's treatment later determined to have been medically necessary.) Sundown Ranch seeks to recover benefits under the Group Policy as an assignee, and its right to recover is clearly derived from the rights of Powell, the insured under the Group Policy. In Transitional, the Fifth Circuit held that ERISA preempts state law claims where coverage under an ERISA plan does exist, and the health care provider seeks to recover benefits as an assignee of the insured. Transitional, 164 F.3d at 954 (citing Hermann Hosp. v. MEBA Medical Benefits Plan, 845 F.2d 1286, 1290 (5th Cir. 1988)).
Accordingly, Sundown Ranch's state law claims of estoppel, breach of contract, violation of the Texas insurance code, violation of the DTPA, tortious interference with a contractual relationship, misrepresentation, breach of good faith and fair dealing, and negligent misrepresentation are preempted by ERISA. See 29 U.S.C. § 1144 (a), (b)(2)(A); Kentucky Assoc. of Health Plans, 123 S.Ct. at 1479; Transitional, 164 F.3d at 954 (citing Hermann Hosp., 845 F.2d at 1290).
IV. Review of Denial of Benefits Under ERISA
Sundown Ranch also asserts a claim for benefits under § 1132(a)(1)(B) which provides a statutory cause of action under which a beneficiary or plan participant may recover benefits due under the terms of an ERISA plan. 29 U.S.C. § 1132 (a)(1)(B). The court uses an abuse of discretion standard in reviewing factual determinations made by ERISA plan administrators, including determinations of medical necessity. Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Meditrust Financial Services Corp. v. The Sterling Chemicals, Inc., 168 F.3d 211, 214 (5th Cir. 1999). The Court must determine whether the decision to deny benefits was arbitrary or capricious. Meditrust, 168 F.3d at 215. A decision is arbitrary only if "`made without a rational connection between the known facts and the decision or between the found facts and the evidence.'" Id. (quoting Bellaire Gen. Hosp. v. Blue Cross Blue Shield, 97 F.3d 822, 828-29 (5th Cir. 1996)). The court will affirm an administrator's decision if it is supported by substantial evidence. Meditrust, 168 F.3d at 215.
In the instant case, JALIC provided summary judgment evidence supporting its decision that the majority of the treatment at issue was not medically necessary. Physicians with JALIC's external review organization twice determined the treatment was not medically necessary, and an independent review organization affirmed that determination, except for the portion of treatment from January 4-9, 2001. JALIC's decision was not arbitrary or capricious, therefore, it did not abuse its discretion. See Meditrust, 168 F.3d at 215; Sweatman v. Commercial Union Ins. Co., 39 F.3d 594, 602 (5th Cir. 1994) (not abuse of discretion where ERISA plan administrators relied on opinions of independent consulting physicians in denying benefits). Sundown Ranch failed to produce any evidence or raise any genuine issues of material fact that JALIC abused its discretion when it denied full benefits to Sundown Ranch.
V. Conclusion
For the reasons stated above, Defendant's motion for summary judgment is GRANTED. This action is DISMISSED WITH PREJUDICE against Defendant. Judgment will be entered that Sundown Ranch, Inc. take nothing on its claims in this case.