Managed Care Lawsuit Watch - February 2007
This summary of key lawsuits affecting managed care is provided by the Health Care Group of Crowell & Moring LLP. If you have questions or need assistance on managed care law matters, please contact any member of the health law group.
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Cases in this issue:
- Chicago District Council of Carpenters Welfare Fund v. Caremark Inc.
- The American Medical Association, et al. v. United Healthcare Corporation
- Riverside Medical Associates v. Humana, Inc.
- Quality Infusion Care, Inc. v. Aetna Health, Inc.
- Benefit Recovery, Inc. v. Wooley
- St. Luke’s Episcopal Hospital v. Principal Life Insurance Co.
- Alabama Dental Ass’n v. Blue Cross and Blue Shield of Alabama, Inc.
- Fresno Comm. Hosp. and Med. Ctr. v. UFCW Employers Benefit Plan of N. Cal. Group Admin., et al.
- Justice v. Physicians Mutual Insurance Co.
- Mondry v. American Family Mutual Insurance Co.
- Randles v. The Galichia Med. Group, P.A. ERISA Benefit Plan
- Via Christi Regional Medical Center, Inc. v. Blue Cross and Blue Shield of Kansas, Inc.
- Regency Hospital Co. of Meridian, LLC v. Gilsbar, Inc., et al.
Chicago District Council of Carpenters Welfare Fund v. Caremark Inc.
7th Circ. Ct. of Appeals Case No. 05-3476 Jan. 19, 2007
The Seventh Circuit U.S. Court of Appeals affirmed a district court opinion that held Caremark Inc. and its parent company Caremark Rx Inc., (collectively “Caremark”) did not act as a health benefits plan fiduciary for the Chicago District Council of Carpenters Welfare Fund (the “Fund”) with respect to Caremark’s dealings with drug manufacturers and retailers. Thus, the Court affirmed the determination that Caremark did not breach any fiduciary duties under ERISA with respect to pricing the drugs it provided to the Fund.
The Fund contracted with Caremark to manage the prescription drug benefit that the Fund provided its members. Pursuant to the contract, however, Caremark was not considered a plan fiduciary; rather, the Fund had sole authority to control and administer the prescription drug benefit. The Fund sued Caremark under ERISA for breach of fiduciary duty and argued that Caremark breached its duties by: 1) charging the Fund higher prices for drugs than Caremark had paid; and 2) failing to pass-on rebates and discounts it negotiated with drug retailers and manufacturers. Caremark filed a motion to dismiss, which the district court granted.
The Fund appealed the decision to the Seventh Circuit, arguing that the contract granted Caremark discretionary authority to control and administer the prescription drug benefit plan, thereby bestowing fiduciary duties upon Caremark with respect to its ability to: 1) negotiate drug prices with retailers; 2) negotiate rebates and discounts with manufacturers; 3) manage the drug pricing formulary program; and 4) manage the drug-switching program. The Appellate Court, however, rejected the Fund’s arguments.
With respect to Caremark’s ability to negotiate drug prices and discounts, the Appellate Court held that Caremark was not a fiduciary because the Fund contracted with Caremark at arm’s length for the price it paid and rebate it received for prescription drugs from Caremark. The Appellate Court held that the price the Fund paid was based on a fixed number, which included a discount but was not controlled by either party. The Appellate Court also held that the contract did not obligate Caremark to pass on any added discounts it may procure from retailers or manufacturers, but instead obligated Caremark to provide the fixed rebate previously negotiated. Likewise, the contract neither obligated nor allowed Caremark to enter into contracts for the Fund with respect to manufacturing rebates. The Court held that by contracting to pay and receive fixed prices and rebates, the Fund gave up the right to secure added savings from Caremark.
With respect to Caremark’s ability manage the plan’s formulary and drug-switching programs, the Court held that the contract granted the Fund – not Caremark – the sole authority to control both programs. Indeed, the court found that the Fund possessed sole authority to control and administer the prescription drug benefit plan as a whole and specifically had the power to act as the final arbiter with regard to any formulary or drug-switching decision. Although the Fund contracted with Caremark to administer these programs, the court held that the Fund retained final discretionary authority to manage these programs.
Plaintiffs, which included health plan beneficiaries, providers and medical associations, moved to amend their complaint to add claims under RICO and state and federal antitrust laws against United Healthcare Corporation and related entities (collectively, “United”). With regard to the antitrust claims, the plaintiffs alleged that United manipulated two databases used by insurers in setting usual, customary, and reasonable rates (“UCR”) in order to under-reimburse beneficiaries and their providers for out-of-network services. More specifically, the plaintiffs claim that United and Health Insurance Association of America, from which United acquired one of the databases, conspired and agreed to manipulate the database in a manner that would restrain trade and reduce competition. As to the RICO claims, the plaintiff alleged that the databases were used to execute fraudulent reimbursement schemes relating to UCR.
United opposed the motion on several grounds, including undue delay, undue prejudice, bad faith. and futility. The U.S. District Court for the Southern District of New York rejected United’s arguments and granted the plaintiffs’ motion to amend their complaint for additional claims based on injuries that occurred after July 15, 2000. The Court held that there was no undue delay, relying on the plaintiffs’ assertion that the proposed amendments were based on information acquired during discovery, that they acted promptly after learning the relevant facts, and that the case remained at an early procedural stage. The Court declined to find that the plaintiffs acted in bad faith in the absence of any evidence demonstrating bad faith. The Court also concluded that no undue prejudice was present, noting that the case was still in a relatively early stage of litigation and the proposed claims were substantially related to the existing claims. Addressing United’s argument that the plaintiffs’ amendment would be futile, the Court held that the claims were not time-barred and stated that “the alleged injuries occurred each time the defendants made ‘false UCR reimbursement determination[s].’” However, the Court also concluded that there was no tolling of the statute of limitations based on the doctrines of fraudulent concealment or relation back.
Despite the fact that another United States District Court recently granted summary judgment to defendants of a class action suit, including United, regarding similar claims, the Court held that res judicata did not apply because the other case did not address facts and evidence crucial to this case’s proposed amended claims.
Riverside Medical Associates, (“Riverside”) a medical provider, brought a suit against several health insurance companies for breach of contract, fraud, and state RICO claims.
In a 2003 contract entered into between Riverside and Humana entities, Riverside agreed to provide medical services to Humana entities’ members in exchange for 70% of the Medicare Fee Schedule or physician’s usual and customary charges, whichever was less. In 2004, Riverside also entered into an agreement with American WholeHealth Networks, Inc. (“AWHN”) under which Riverside gave a 15% discount off its regular rates to AWHN’s members. However, beginning in 2006, Humana and AWHN began paying Riverside’s claims (including remaining claims from 2005) at a capitation rate of less than $10 per visit. In their defense, the insurers asserted that they treated Riverside as a non-participating provider from July, 2005 forward, as the contracts at issue has expired on that date.
The health insurers removed the case to federal court on the ground that the contracts were employer-provided health benefits subject to ERISA, and that Riverside brought the action as an ERISA assignee of its patients’ benefits. Although acknowledging that a state common law breach of contract is removable to federal court if it relates to an ERISA plan, the Court held that the health insurers had failed to show a written assignment of claims from ERISA beneficiaries to Riverside. As a result, Riverside lacked standing under ERISA. Although the insurer argued that the CMS claim forms constituted valid assignments, the court noted that the forms were not in the record and therefore gave Riverside the benefit of the doubt as to whether the forms could be considered a valid assignment of benefits.
The health insurers also argued that Riverside was a non-participating provider because the contracts at issue had terminated. The court rejected this argument and instead concluded that “whether or not Plaintiff was a participating provider, the claims in this case do not fall under ERISA preemption.”
After Quality Infusion Care, Inc. (“QIC”) performed infusion therapy on a breast cancer patient who was part of Aetna Health Care Inc.’s (“Aetna’s”) health maintenance organization, Aetna refused to pay approximately $72,000 in fees because QIC was a non-network provider. QIC brought suit in Texas state court alleging violations of Texas’ any willing provider law, and Aetna promptly removed the case to federal district court, arguing that ERISA completely preempts the Texas state law.
In April, 2006, the district court agreed with Aetna and held that ERISA completely preempted QIC’s claim. Upon QIC’s motion for reconsideration and Aetna’s motion for summary judgment, the district court noted that its April, 2006 decision incorrectly relied on cases relating to conflict preemption, not complete preemption. Nonetheless, the court reached the same result it did in April based on the Supreme Court’s 2004 decision in AetnaHealth v. Davila, 542 U.S. 200 (2004): “Under Davila, complete preemption applies to Quality Infusion’s claim for damages for the refusal to pay benefits ‘pursuant to the Plan and Texas’ Any Willing Provider statute....” The court found that the claim could have and should have been brought under ERISA, and thus the court denied QIC’s motion for reconsideration.
Turning to Aetna’s motion for summary judgment, the court found that QIC improperly relied on a provision in the Texas statute that does not apply to managed care plans. Further, the court found that the Texas statute does not require a plan to cover out of network services when the plan does not cover such services. According to court, QIC was attempting to get the benefits of network service providers without actually becoming part of the network. The court held that QIC could not show a violation of the Texas law that would provide a basis for recovery, either under the Plan and the state statute, or under ERISA. Accordingly, it granted Aetna’s motion for summary judgment.
On January 8, 2003, the Louisiana Department of Insurance issued Directive 175, stating in relevant part, “any right of recovery, on the part of the insurer, whether by subrogation or reimbursement, is subordinate to the insured’s right to be fully compensated for his damages, and that the insurer is obligated to share in the legal expenses incurred.” Benefit Recovery, Inc. sued Robert Wooley, Louisiana’s Commissioner of Insurance, alleging that the directive was outside the scope of his authority and preempted by ERISA.
The district court disagreed. It held that the directive was saved from ERISA preemption by the ERISA insurance savings clause. First, the court found that the directive was a “law” within the meaning of the ERISA insurance savings clause. Then the court went on to conclude that the directive substantially affected the risk pooling arrangement between the insurer and the insured, such that the savings clause could be invoked. The court noted that this directive “not only affects the risk pooling arrangement, but it also controls the actual terms of the insurance policies.” Accordingly, the court determined that the directive was not preempted by ERISA. The court declined to address the question of whether the substance of the directive has adequate support in Louisiana law.
A self-funded employee welfare benefit plan of Guardsmark Inc. (the “Plan”) excluded coverage for treatment of preexisting conditions. A plan beneficiary sought an angioplasty from St. Luke’s Episcopal Hospital (“St. Luke’s”), which in turn sought a coverage determination from the Plan’s administrator, Principal Life Insurance Co. (“Principal”). Principal preliminarily and tentatively authorized the angioplasty, but stated that its approval was subject to further review to determine if the procedure was excluded. St. Luke’s provided the angioplasty and sought payment from the Plan. Upon receipt of St. Luke’s claims, Principal requested the patient’s medical records and determined that a preexisting condition precluded coverage for the angioplasty.
St. Luke’s sued Principal and the Plan for violating Texas law, specifically portions of the insurance code prohibiting material misrepresentations. However, the United States District Court for the Southern District of Texas found no evidence of misrepresentation, and determined that neither the Plan nor Principal represented that the procedure would be covered. In fact, the court found evidence that Principal had sufficiently qualified its preliminary and tentative authorization by stating that payment would not be guaranteed until review for preexisting conditions.
St. Luke’s claimed that Principal’s and the Plan’s conduct violated Texas’ prompt-pay laws, but the court dismissed these claims on the basis that neither the Plan nor Principal had issued an “insurance policy” as defined by Texas law, and further because neither Principal nor the Plan was an HMO. The court allowed St. Luke’s 10 days to provide evidence that either the Plan or Principal served as an “insurer” for purposes of the prompt-pay provisions. Finally, the court dismissed St. Luke’s breach of contract claim, finding that the contract only required payment for covered services, and the angioplasty was not a covered service.
The U.S. District Court for the Middle District of Alabama recently found that ERISA preempted state law claims alleging Blue Cross and Blue Shield of Alabama, Inc. (“BCBS-AL”) engaged in fraudulent billing practices. The class action suit was brought by Dr. Mitchell, an in-network dentist, Dr. Sanderson, an out-of-network dentist, and the Alabama Dental Association, who alleged that BCBS-AL processed dental claims through a system that automatically down-coded and bundled submitted services, resulting in lower payments. Plaintiffs alleged fraud, unjust enrichment, and breach of contract. BCBS-AL removed the case to federal court on the basis of ERISA and FEHBA preemption.
On plaintiffs’ motion for remand and BCBS-AL’s motion to dismiss, the District Court found that almost all of the dentists’ patients were enrolled in ERISA plans, and found that ERISA preempted all of Dr. Sanderson’s claims because (1) as an out-of-network provider, Dr. Sanderson only had standing based upon the assignment of claims he received from his patients; and (2) his claims essentially attempted to recover additional benefits under the patients’ ERISA plans and thus “related to” those plans.
The Court also found that many of the dentists’ patients were enrolled in service plans governed by FEHBA. The Court ruled that BCBS-AL had sufficiently argued that FEHBA precluded Dr. Sanderson’s claims because they fell under FEHBA’s civil enforcement provisions.
As to Dr. Mitchell, the Court found that neither ERISA nor FEHBA preempted his claims because, as an in-network provider, Dr. Mitchell sought relief solely based on his contractual relationship with BCBS-AL. However, the Court retained pendant jurisdiction over Dr. Mitchell’s claims, and denied plaintiffs’ motion to remand, because Dr. Mitchell’s claims were based on the same facts and circumstances as Dr. Sanderson’s. The Court then dismissed the Alabama Dental Association as a viable plaintiff for lack of standing, as the relief sought required an individual inquiry into each Association member’s injuries, thus preventing the Association from standing in the shoes of its members.
Fresno Comm. Hosp. and Med. Ctr. v. UFCW Employers Benefit Plan of N. Cal. Group Admin., et al.
E.D. California. No. 06-1244 Dec. 19, 2006
The United States District Court for the Eastern District of California ruled that ERISA does not preempt a health care provider’s breach of contract and misrepresentation claims against a health benefit plan.
Fresno Community Hospital and Medical Center (the “Hospital”) alleged that, after contacting the agent of two employee benefits plans affiliated with the UFCW (the “Plans”) and receiving assurances that a Plan member’s services were authorized, it provided services to the member. When the Hospital received only a small fraction of the approximately $1.4 million it billed for such services, it filed an action in state court against the Plans for breach of contract, quantum meruit, and estoppel, the latter two of which were based on the Plans’ alleged misrepresentations concerning the member’s coverage. The breach of contract claim was based on the contract between the Hospital and the Plans’ agent, Blue Cross of California (“Blue Cross”), specifically the provisions obligating the Plans to make direct payments to the Hospital for services rendered to Plan members.
The Plans removed the action to federal district court and filed a motion to dismiss, arguing that ERISA preempted the Hospital’s claims. The Plans asserted that ERISA preempted the claims because the court would necessarily have to interpret the terms of the member’s ERISA plan. The Hospital argued that such terms were not at issue, as it was not suing the Plans as an assignee of the member’s benefits, but rather in its own right.
The court first rejected the Plans’ argument that ERISA preempted the misrepresentation and quantum meruit claims, finding that a third-party provider’s claims against an ERISA fiduciary based on misrepresentations over whether an individual is covered are “simply not preempted” by ERISA. The court then ruled that ERISA does not preempt a third-party provider’s breach of contract claim if the provider is not suing as an assignee of the member’s ERISA plan. As the Hospital alleged that the Plans breached the contract between the Hospital and Blue Cross, interpreting the terms of the ERISA plan would be unnecessary, and thus the claim did not have the requisite “connection with” or “reference to” an ERISA plan.. For these reasons, the court denied the Plans’ motion to dismiss and remanded the suit to state court.
On remand, the state court will likely have to address the issue of whether the Hospital can successfully prosecute a breach of contract claim based on its contract with Blue Cross, if the Plans are not privy to that contract.
The United States District Court for the Western District of Kentucky recently held that the three named class-plaintiffs (“Plaintiffs”), former insurance agents of defendant Physicians Mutual Insurance Co. (“Physicians Mutual”), were not appropriate class representatives and that their claims failed to meet the typicality requirement needed to assert a class action.
Plaintiffs had asserted both breach of contract claims and violations of the Racketeer Influence and Corrupt Organizations Act (“RICO”) against Physicians Mutual, alleging that Physicians Mutual instructed them not to write supplemental insurance policies for senior citizens with health problems and to deny such seniors’ supplemental insurance applications during CMS’ six-month open enrollment program. Plaintiffs claimed that the denial instructions they allegedly received violated their contracts and that Physicians Mutual fired them when they failed to comply. Plaintiffs further alleged that these instructions also violated the contract of every Physicians Mutual agent who had the same contract at that time.
The district court, however, disagreed and held that the Plaintiffs failed to show that their claims were typical of the proposed class of 150 insurance agents. Although the Plaintiffs alleged the entire class was subject to the same agency contract, the district court held that this was insufficient to show typicality, and that just because Physicians Mutual allegedly gave an illegal open enrollment instruction to some agents, including Plaintiffs, it did not follow that any agent who had the same contract as Plaintiffs were also injured by the defendant’s actions.
The court reasoned that where a proposed class seeks money damages, “it is inappropriate to allow plaintiffs with viable claims to establish liability on behalf of those who may not even have been harmed by a defendant.” The court further stated that, “[e]ven if the defendants' conduct was wrongful, that fact would not entitle every person who could conceivably have been affected by that conduct to recover as a class member.”
The court's decision did not express any opinion as to the validity of the individual plaintiff's claims, but merely dealt with the plaintiffs' motion for class certification satisfied Federal Rule of Civil Procedure 23.
Cigna, the administrator of a self-insured group health insurance plan sponsored by American Family Mutual Insurance Co. (“American Family”), denied coverage for speech therapy services utilized by Sharon Mondry’s son, on the grounds that the speech therapy was not medically necessary. Mondry, an employee of American Family and a participant in its plan, filed an administrative appeal of Cigna’s denial. After Cigna upheld its denial, Mondry made several written requests for plan documents from both Cigna and American Family. Although American Family eventually provided Mondry with a copy of the summary plan description, it stated that it did not have any separate plan documents. Mondry also requested a copy of the Clinical Resource Tool for Speech Therapy (the “Resource Tool”) from American Family, but was told to obtain a copy from Cigna. Cigna, however, claimed that the Resource Tool was proprietary and would not be released to either American Family or Mondry.
Ultimately, Cigna provided Mondry with a copy of certain documents, not including the Resource Tool, reversed its earlier denial, and authorized reimbursement for the speech therapy services. Nevertheless, Mondry filed a lawsuit against American Family, alleging that it (1) violated ERISA by failing to provide her a copy of requested plan documents; and (2) breached its fiduciary duty by misrepresenting the terms and administration of the plan by withholding information necessary to defend her claim and perfect her appeal.
The United States District Court for the Western District of Wisconsin held that American Family was not obligated to disclose documents that did not define the rights or benefits available to plan participants and beneficiaries. However, the court held that the Resource Tool was subject to ERISA’s disclosure requirements because it was the type of formal document under which the plan operated, and specifically because it “allowed plaintiff to know: (1) what circumstances precluded her from obtaining benefits under the plan; and (2) what procedures she needed to follow to obtain benefits under the plan i.e. what type of objective clinical information she needed to submit in support of the medical necessity element of her claim.”
Although American Family argued that it should not be held liable because it never had possession of the Resource Tool, the court found that ERISA does not restrict a plan’s disclosure requirement only to those documents in its possession. Nonetheless, the Court did not grant summary judgment for Mondry, as issues of material fact remained unresolved regarding the harm or prejudice that Mondry suffered as a result of American Family’s failure to disclose the documents.
Shortly after Michael J. Randles, a physician, enrolled in his company’s long-term disability plan, he received a summary plan description (“SPD”) containing a 24-month limitation on benefits for a disability caused by a mental disorder. Subsequently, he received a short description of the Plan (the “SPD1”), which did not mention the 24 month limitation. When Randles submitted his claim for disability to his employer, he included depression, obsessive compulsive personality, and “bipolar type 2” in the description of his illness. Upon a complete review of his medical records and doctors’ statements, a Standard Insurance Company (“Standard”) analyst determined that Randles’ disability was caused by a mental disorder. After an initial denial, Randles supplied further medical documentation, which Standard had reviewed by a psychiatrist. That psychiatrist determined that Randles was impaired and unable to practice medicine due to his mood disturbance and personality disorder. Upon a second determination, weighing all of the evidence, Standard once again denied benefits.
After Standard denied his claim, Randles brought an action for benefits described by the SPD1. The court found, however, that the SPD1 “was clearly only an outline of the plan’s ‘features’ or highlights rather than a substantive statement or complete summary of terms.” The court held that the actual SPD and not the SPD1 governed the case, and further found both the initial and supplemental determinations denying benefits to be reasonable.
The court therefore dismissed Randles’ ERISA claims, determined that ERISA preempted his remaining state law claims, and granted the defendants’ motions for summary judgment. The court further dismissed all claims against the other, individual defendants, finding that Randles had failed to allege any facts that would render such parties liable in an individual capacity.
Via Christi Regional Medical Center, Inc. v. Blue Cross and Blue Shield of Kansas, Inc.
D. Kansas No. 04-1253-WEB Nov. 26, 2006
The U.S. District Court for the District of Kansas granted Blue Cross and Blue Shield of Kansas, Inc.’s (“BCBS-KS’s”) motion for summary judgment as to Via Christi Regional Medical Center (“Via Christi”), finding that an assignment of benefits did not grant Via Christi the right to sue BCBS-KS for breach of fiduciary duty under ERISA. However, the court allowed an enrollee’s claim of breach of fiduciary duty to proceed.
Plaintiff Cecilia Arnold was an enrollee in an employer-sponsored ERISA plan (“the Plan”). Through December 31, 2001, the Plan was self-insured and administered by BCBS-KS, with a stop-loss policy underwritten by BCBS-KS for individual claims over $50,000. The employer filed for bankruptcy in 2001. As part of the bankruptcy process, the Plan engaged insurance broker IMA of Kansas, and BCBS-KS, to advise the Plan on the possibility of converting the Plan from self-funded to fully-insured status. Beginning January 1, 2002, the Plan became fully insured by BCBS-KS and the stop-loss policy was canceled.
Ms. Arnold was admitted to Via Christi for premature labor in October of 2001; her child remained in the hospital from his birth in October of 2001 until March of 2002. The hospital bill for Ms. Arnold’s and her child’s services totaled over $500,000. The bulk of the charges were for the period covered by the stop-loss policy; however, Via Christi did not submit most of its claims to BCBS-KS until after the stop-loss policy expired. If the stop-loss policy had not expired, BCBS-KS would have been liable for all but $50,000 of the charges. Without the stop-loss policy, the Plan was liable for the bulk of the charges, but was financially unable to pay them. Ms. Arnold and Via Christi filed suit against BCBS-KS, alleging that BCBS-KS breached its fiduciary duty to the Plan because it was aware that large claims for Ms. Arnold and her child were likely, but it had advised and assisted the Plan to cancel the stop-loss policy and convert to fully insured status.
BCBS-KS filed a motion for summary judgment arguing, inter alia: 1) Ms. Arnold’s assignment to Via Christi of her right to insurance benefits did not include the right to sue for breach of fiduciary duty; and 2) any duties BCBS-KS had to the Plan were not fiduciary in nature, but ministerial.
The Court granted BCBS-KS’ motion for summary judgment as to Via Christi, finding that the assignment was only for “medical benefits payable by a policy of insurance,” and nothing in the specific language of the assignment purported to give Via Christi the right to pursue a claim for a lapse in insurance coverage caused by a breach of fiduciary duty.
The Court also found that BCBS-KS had agreed to consult and advise the Plan about revisions to the Plan, coverage, and cessation of benefits, that these activities could involve the exercise of discretionary responsibility, and that it was uncontroverted that BCBS-KS alone had knowledge of the outstanding claims for the Arnolds’ services. Thus, BCBS-KS may have assumed a fiduciary duty to inform the Plan about how cessation of benefits would affect outstanding claims, and the Court could not say that BCBS-KS was entitled to summary judgment on the issue. Therefore, Ms. Arnold’s breach of fiduciary duty claims could proceed.
Joella Webb, a covered beneficiary under her husband’s employer’s self-funded ERISA plan (the “Plan”), fell down some stairs and suffered a closed head injury. She was treated at a south Alabama hospital for three months, but Hines & Associates (“Hines”), a case management and utilization review company retained by the Plan’s administrator, Gilsbar, Inc. (“Gilsbar”), negotiated Ms. Webb’s transfer to Regency Hospital Co. of Meridian, LLC (“Regency”).
At the time of the transfer, Regency was not in the Plan’s provider network. However, Hines negotiated and Gilsbar executed a letter agreement with Regency that obligated the Plan to pay Regency per diem rates for Ms. Webb’s care. Although Hines repeatedly pre-certified the care that Regency was to provide to Ms. Webb, Gilsbar denied payment of Regency’s first invoice, asserting that Ms. Webb’s injuries were alcohol-related and excluded from coverage on that basis.
Regency sued Hines and Gilsbar for breach of contract, fraud, misrepresentation and other state law claims. In support, Regency submitted evidence that Hines and Gilsbar were aware that Ms. Webb’s injuries may have been alcohol-related during the time the letter agreement was being negotiated, and further that Regency had been assured that no Plan exclusions applied.
On the defendants’ motion for summary judgment, the court dismissed Regency’s breach of contract claim, finding that the letter agreement obligated the Plan to pay only for “covered” benefits, and that the services provided to Ms. Webb were not covered as her injuries were, indeed, alcohol-related.
However, the court refused to dismiss tort claims, finding that sufficient issues of material fact as to Hines and Gilsbar’s conduct should be tried before a jury. Specifically, the court found that a jury should try the issues related to whether Hines and Gilsbar (1) induced Regency to provide services to Ms. Webb, knowing that the Plan would likely not have to pay for such services on the basis that Ms. Webb’s injuries were alcohol-related; and (2) misrepresented that no coverage issues were apparent.
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