Opinion
CIV. 1999-4058.
August 15, 2001
Timothy W. Bjorkman, Bjorkman Fink, PC, Bridgewater, S.D. Attorney for Plaintiff.
Dennis Duncan, Freiberg, Zimmer, Duncan Nelson, Parker, S.D. Attorney for DakotaCare.
Roberto A. Lange, Davenport, Evans, Hurwitz Smith, Sioux Falls, S.D. Attorney for Principal Mutual Life.
Jeffrey A. Cole, Freiberg, Zimmer, Duncan Nelson, Parker, S.D. Attorney for DakotaCare Administrative Services.
Roger A. Sudbeck, Boyce, Murphy, McDowell Greenfield, Sioux Falls, S.D. Attorney for Platte Community Memorial Hospital.
MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT IN FAVOR OF DAKOTACARE AND DAKOTACARE ADMINISTRATIVE SERVICES, INC.
Sarah Fink alleges that DAKOTACARE breached its insurance contract, made negligent misrepresentations and acted in bad faith. DAKOTACARE and Dakotacare Administrative Services, Inc., (hereinafter DAS) contend that Sarah's state law claims are preempted. DAKOTACARE also contends that it did not abuse its discretion in denying Sarah benefits under the ERISA statutes. Both DAKOTACARE and DAS move for summary judgment. Sarah also moves for summary judgment against DAKOTACARE and DAS.
FACTS
Sarah is the daughter of Marvin and Margaret Fink. In 1997, Margaret resigned from her position as the Director of Nursing at Platte Community Memorial Hospital and accepted a position with Holden Village, a remote, church retreat located in Washington. Before leaving Platte, Margaret elected to enroll in DAKOTACARE's COBRA plan offered through the hospital. Sarah was covered under this plan because she qualified as a dependent, being under the age of 24 and a full-time student. When Margaret began her employment at Holden Village in March of 1997, she declined coverage under Holden Village's health insurance policy.
In December of 1997, Margaret received a letter from Lorraine Plooster, an administrative assistant with Platte. The letter informed Margaret that Platte was switching carriers from DAKOTACARE to Lincoln Mutual effective January 1, 1998, and enclosed an application. There is a dispute as to whether the letter informed Margaret that she was required to switch to Lincoln Mutual if she wished to continue her COBRA coverage. Neither party retained a copy of the letter. On December 23, 1997, Margaret informed Platte that she would not be switching carriers to Lincoln Mutual because she decided to participate in the Holden Village plan with Principal Mutual Life. Despite her knowledge that DAKOTACARE no longer insured Platte or its employees as of January 1, 1998, Margaret mailed a premium check on December 29, 1997, to DAKOTACARE to continue her COBRA coverage.
On December 27, 1997, Sarah voluntarily admitted herself to McKennan Hospital in Sioux Falls, South Dakota. Sarah was diagnosed with schizo-affective disorder. Due to the remote location of Holden Village and the lack of outside communication, Margaret and Marvin were not aware of Sarah's hospitalization until December 29, 1997, when Marvin called relatives while in town.
On December 29, 1997, McKennan Hospital called DAKOTACARE to verify Sarah's coverage. Authorization was given for the policy limits. Sarah was released from McKennan on February 4, 1998. On January 20, 1998, after determining that Platte cancelled its DAKOTACARE group insurance plan, DAKOTACARE informed Margaret that coverage had been terminated. DAKOTACARE refunded the December 29, 1997, premium check and denied coverage for Sarah after January 1, 1998.
STANDARD OF REVIEW
Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if it can show that "there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999). In determining whether summary judgment should issue, the court must view the evidence and inferences reasonably drawn therefrom "in the light most favorable to the nonmoving party." Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999) (citing Enterprise Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996); Adkison v. G.D. Searle Co., 971 F.2d 132, 134 (8th Cir. 1992)). The burden is on the moving party to establish the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); see also Enterprise Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 SCt 1348, 1356-57, 89 L.Ed.2d 538 (1986).
DISCUSSION
Sarah alleges that DAKOTACARE violated SDCL 58-33-67(1) and (3) by failing to respond to the submitted claim within thirty days and for failing to promptly investigate. SDCL 58-33-69 provides that "[n]othing in §§ 58-33-66 to 58-33-69, inclusive, grants a private right of action." Because Sarah does not have a private right of action, DAKOTACARE is entitled to summary judgment on the cause of action alleging violations of SDCL 58-33-67(1) and (3).
Sarah also alleges that DAKOTACARE violated certain provisions of the South Dakota Unfair Trade Practices Act. Because the causes of action arise under state law, the court must determine if they are preempted by the provisions of ERISA. "Consistent with the decision to create a comprehensive, uniform federal scheme for regulation of employee benefit plans, Congress drafted ERISA's preemption clause in broad terms." Kuhl v. Lincoln Nat'l Health Plan of Kansas City, Inc., 999 F.2d 298, 301 (8th Cir. 1993) (citing Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137, 111 SCt 478, 481, 112 L.Ed.2d 474 (1990)). It was the intention of Congress to "`preempt the field for Federal regulations, thus eliminating the threat of conflicting or inconsistent State and local regulation of employee benefit plans.'" New York State Conference of Blue Cross Blue Shield Plan v. Travelers Ins. Co., 514 U.S. 645, 115 SCt 1671, 1677, 131 L.Ed.2d 695 (1995) (quoting 120 Cong. Rec. 29197, 29933 (1974)).
ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ." 29 U.S.C. § 1144(a). The statute further provides that, "nothing . . . 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)(1). To determine whether a state law is preempted, the key is whether the state law in question "relates to" an ERISA plan. 29 U.S.C. § 1144(a). "A law [clearly] `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Kuhl, 999 F.2d at 302 (quoting Shaw, 463 U.S. at 96-97, 103 SCt at 2900).
In this case, Sarah is alleging that several state laws prohibiting unfair trade practices were violated by the improper processing of her benefits claims. "In Pilot Life, the Supreme Court held that ERISA preempts state common-law causes of action arising from the alleged improper processing of a claim for benefits under an ERISA-regulated plan." Kuhl, 999 F.2d at 302. As in Kuhl, "artful pleading" does not change the fact that Sarah's claims are based on the allegedly improper processing of her claims for benefits. Kuhl, 999 F.2d at 303. The state law claims "relate to" an ERISA regulated plan and are preempted.
Sarah argues that the claims are not preempted due to ERISA's savings clause. Preemption does not occur when state laws regulate the insurance industry. 29 U.S.C. § 1144(b)(2)(A). "The Supreme Court has explained that a state law `regulates insurance' if (1) it is directed specifically toward the insurance industry and (2) it applies to the `business of insurance' within the meaning of the McCarran-Ferguson Act . . . ." Prudential Ins. Co. of Am. v. National Park Medical Ctr, Inc., 154 F.3d 812, 827 (8th Cir. 1998) (citations omitted). To determine whether a practice falls under the "business of insurance" for purposes of the McCarran-Ferguson Act, three criteria have been used: "[F]irst, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry." Pilot Life, 48-49, 1553 (quoting Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 SCt 3002, 3009, 73 L.Ed.2d 647 (1982)).
Although the stated purpose of South Dakota's Unfair Trade Practices Act is to "regulate trade practices in the business of insurance," the Act regulates more than just the "business of insurance" as defined by ERISA. See SDCL 58-33-1. The essence of the business of insurance is to spread the risk of a policyholder. In addition to regulating deceptive and misleading statements regarding the terms of policies, the Act also prohibits false or misleading statements in advertising, discrimination, and a variety of other unfair practices. These are not acts that spread the risk of a policyholder. Nor is the advertisement of possible benefits an integral part of a policy relationship. The Act goes beyond the regulation of the business of insurance and reaches other administrative functions of an insurance entity. See Tri-State Mach., Inc. v. Nationwide Life Ins. Co., 33 F.3d 309 (4th Cir. 1994); Custer v. Pan American Life Ins. Co., 12 F.3d 410 (4th Cir. 1993); Powell v. Chesapeake Potomac Tel. Co. of Virginia, 780 F.2d 419 (4th Cir. 1985). As a result, the causes of action arising under the Unfair Trade Practices Act are not saved under ERISA's savings clause and summary judgment is granted to DAKOTACARE on these claims.
Sarah also alleges that DAKOTACARE violated state law by acting in bad faith in denying her claim for benefits. The court previously dismissed this cause of action in its order dated November 8, 1999, after finding preemption. Summary judgment on this claim is granted.
Sarah alleges that DAKOTACARE violated ERISA when it denied her claims for benefits. DAKOTACARE contends that the determination of coverage was a discretionary decision which must be upheld unless there was an abuse of discretion. "[T]he Supreme Court has held that a reviewing court should apply a de novo standard of review unless the plan gives the `administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.'" Donaho v. FMC Corp., 74 F.3d 894 (8th Cir. 1996) (quoting Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 SCt 948, 956-57, 103 L.Ed.2d 80 (1989)).
The employer's application, which is part of the plan documents between DAKOTACARE and Platte, reads: "DAKOTACARE shall be a fiduciary of the plan administrator and shall retain discretionary authority to determine eligibility for benefits and to construe the terms of coverage." Because DAKOTACARE retained the discretionary authority to determine eligibility and the terms of the contract, the court must review DAKOTACARE's decision to decline coverage under an abuse of discretion standard.
"Under an abuse of discretion standard, the plan administrator's plan construction will be upheld, if reasonable." Buttram v. Central States, Southeast Southwest Areas Health Welfare Fund, 76 F.3d 896, (8th Cir. 1996). To determine the reasonableness of a plan administrator's action the court must consider the following five factors: "(1) whether the interpretation is consistent with the goals of the plan, (2) whether the interpretation renders any plan language meaningless or inconsistent, (3) whether the interpretation conflicts with the requirements of the ERISA statute, (4) whether the administrators have interpreted the words at issue consistently, and (5) whether the interpretation is contrary to the clear language of the plan." Buttram, 76 F.3d at 902.
In this case, DAKOTACARE returned Margaret's premium check and refused to cover Sarah after its master contract with Platte expired on January 1, 1998. The master contract provides in part that "DAKOTACARE shall not be required to issue or renew a conversion or continuation policy covering any person if . . . [s]imilar benefits are provided for, or available to, such person by reason of any state or federal law . . . ." Under federal law, Platte was required to offer continuation coverage to Margaret and her dependents with its new insurance carrier. See 29 U.S.C. § 1162(1). Once the contract between DAKOTACARE and Platte terminated, the coverage of Platte's plan members also ended. Margaret was offered similar benefits under Platte's policy with Lincoln Mutual. DAKOTACARE, therefore, was not obligated to provide coverage to Sarah. Thus, DAKOTACARE's interpretation of the terms of the contract is consistent with the language of the plan and the requirements of ERISA. DAKOTACARE's conclusion is reasonable and was not an abuse of discretion. See Cash v. Wal-Mart Group Health Plan, 107 F.3d 637, 641 (8th Cir. 1997). As a result, summary judgment is granted on this issue in favor of DAKOTACARE.
Sarah also alleges that DAKOTACARE violated the ERISA statutes when it failed to provide notice to her of a qualifying event. Under federal law, the plan administrator is required to provide notice to a qualified beneficiary of her rights under the policy after a qualifying event. See 29 U.S.C. § 1166(a)(4). Under 29 U.S.C. § 1002(16)(A), a plan administrator is defined as
(i) the person specifically so designated by the terms of the instrument under which the plan is operated; or
(ii) if an administrator is not so designated, the plan sponsor; or
(iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.
The instrument under which the plan in question operates does not specifically designate a plan administrator. Pursuant to 29 U.S.C. § 1002(16)(A)(ii), if a plan administrator is not designated, the plan sponsor is the plan administrator. 29 U.S.C. § 1002(16)(B) defines a plan sponsor as "the employer in the case of an employee benefit plan established or maintained by a single employer . . . ." Platte is the sole employer offering and maintaining an employee welfare benefit plan. As a result, Platte is the plan sponsor and thus, the plan administrator under the statutory definitions. It was Platte's duty to notify Sarah of qualifying events. DAKOTACARE was not under a duty to notify Sarah of the termination of the contract between Platte and DAKOTACARE and therefore, DAKOTACARE is entitled to summary judgment on this issue.
Sarah has also alleged that DAKOTACARE violated federal law when it failed to provide a certificate of creditable coverage. Under the Health Insurance Portability and Accountability Act [HIPAA], an insurance company is required to provide a certificate indicating the dates an individual had been insured by the company to assist in procuring coverage under a new policy. See 29 U.S.C. § 1181. DAKOTACARE did provide a certificate of creditable coverage showing that Sarah was insured by DAKOTACARE through December 31, 1997. Sarah contends, however, that the certificate should have indicated that she was insured continuously through January 26, 1998.
HIPAA sets forth a mechanism by which the Secretary of Health and Human Services may enforce its provisions, but does not provide a private right of action. See Means v. Independent Life Accident Ins. Co., 963 F. Supp. 1131 (M.D.Ala. 1997). See also Wright v. Combined Ins. Co. of America, 959 F. Supp. 356 (N.D.Miss. 1997); Marsh v. Omaha Printing Co., 80 F. Supp.2d 1043 (D.Neb. 1999); H.R. Conf. Rep. No. 104-736, 198-99 (1996). Summary judgment in favor of DAKOTACARE on this cause of action is granted.
Sarah alleges that DAS breached its contract and was negligent in its failure to notify her of her rights. DAS entered into an agreement with Platte to administer the COBRA benefits on behalf of Platte. These causes of action are based on the alleged improper administration of the insurance plan, and thus the claims "relate to" an employee welfare benefit plan and are subject to preemption by ERISA. The Eighth Circuit has held that "[g]iven ERISA's broad pre-emption provision, state law claims for improper plan administration are pre-empted." Consolidated Beef Indust., Inc., v. New York Life Ins. Co., 949 F.2d 960 (8th Cir. 1991) ( Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208 (8th Cir.), cert. denied, 454 U.S. 968, 102 SCt 512, 70 L.Ed.2d 384 (1981)). As previously discussed, the only state laws that are saved from preemption by ERISA are those that regulate the business of insurance. Breach of contract and negligence causes of action do not regulate the business of insurance and, therefore, the claims are preempted.
As a result, it is hereby
ORDERED that the motion for summary judgment by DAKOTACARE and DAS (Docket 98) is granted and the motion to strike the demand for a jury trial (Docket 98) is denied as moot.
IT IS FURTHER ORDERED that plaintiff's motion for summary judgment (Docket 124) is denied.