MEMORANDUM-DECISION and ORDER
Plaintiff brings this action pursuant to the Employee Retirement Income Security Act, as amended ("ERISA"), 29 U.S.C. §§ 1011-1461, seeking declaratory, injunctive, and compensatory relief as well as an accounting, formation of a constructive trust, and reimbursement for attorneys fees and costs. The plaintiff brought this action on his own behalf and on behalf of all others similarly situated. However, no application for class certification has been made.
Plaintiff alleges that defendant breached the contract under which defendant provides health care benefits to plaintiff, and breached its fiduciary duty as administrator of the plan. In essence, plaintiff's allegations stem from defendant calculating its coinsurance liability by applying its percentage to one amount, while calculating plaintiff's coinsurance liability by applying his percentage to a different amount, resulting in the defendant's coinsurance liability being less than the percentage for which the parties contracted. Plaintiff alleges that as a result, plan documents misled participants as to benefits, participants made overpayments, and defendant misappropriated amounts relating to lifetime or procedure maximums. Defendant concedes that the two coinsurance percentages are applied to different amounts to determine each party's liability,
but insists that doing so is required by New York State law. Currently before the court are cross-motions for summary judgment. Oral arguments were heard on July 10, 1997, in Utica, New York. Decision was reserved.
Plaintiff Thomas Cavallo secured health insurance coverage, through his employer, with defendant Utica-Watertown Health Insurance Company, Inc., f/k/a Blue Cross and Blue Shield of Utica-Watertown, Inc. ("Blue Cross" or "defendant"). Plaintiff's health insurance plan (the "Plan") is governed by a Comprehensive Contract Form CMMC/92 ($ 100)("Contract"), (Deetz Aff. Ex. C.), and is regulated by ERISA. Blue Cross obtained approval of the Contract from the New York State Insurance Department, as required by N.Y. Ins. Law § 3102.
When a Plan participant, such as plaintiff, is hospitalized, the hospital bills Blue Cross directly. Blue Cross then determines the applicable deductible, calculates both its and the participant's coinsurance liability, determines whether the participant has met the coinsurance ceiling, and notifies the participant of the amount the participant must pay to the hospital. This notification takes place via an Explanation of Benefits form ("EOB"). (See, e.g., Deetz Aff. Ex. D.) The EOB contains, inter alia, a "Procedure Code," "Total Charges," "Allowed Charges," "Deductible," "Coinsurance," "Amount Paid," and "Subscriber's Responsibility" for each procedure. See id. The reverse side of the EOB contains the required ERISA message:
If this summary of benefits indicates that your claim has been denied in whole or in part and you feel it is not justified, you have a right to a review of the decision. To begin the claim denial review process, you must file a written appeal within 60 days after receiving this notice. You should include reasons why you do not agree with the Plan's decision and any additional information pertinent to the claim.
See id. Ex. G. Under the Plan, Blue Cross's coinsurance is 80%, while plaintiff's coinsurance is 20%. Plaintiff's annual coinsurance ceiling is $ 400, and his deductible is $ 100.
Additionally, plaintiff's liability under the plan for hospitalizations at a member hospital is limited to the deductible and coinsurance. The Plan provides that for hospitalizations at a nonmember hospital, Blue Cross will pay less than it would pay to a member hospital, except in emergency admissions. For hospitalizations at a nonmember hospital, plaintiff will be liable for any amount not paid by Blue Cross, in addition to deductible and coinsurance. The Contract contains numerous other provisions which are irrelevant to this case.
Plaintiff was hospitalized at St. Lukes Memorial Hospital ("St. Lukes"), in Utica, New York, from April 6 to 8, 1994. St. Lukes is a Blue Cross participating provider and member hospital. St. Lukes billed $ 4,101.54 for this hospitalization. Blue Cross calculated plaintiff's coinsurance at $ 341.00, the amount remaining of his $ 400.00 maximum coinsurance, based upon the $ 4,101.54 billed amount. His deductible had already been met. Blue Cross calculated its coinsurance based upon $ 3708.78, the Diagnosis Related Groups case-based rate of payment per discharge ("DRG Rate").
Blue Cross paid 80% of the DRG Rate corresponding to plaintiff's coinsurance amount, and 100% of the remaining DRG Rate. (See Pl.'s Not. Mot. Ex. B P 8-11 (detailing calculations performed).) Accordingly, Blue Cross paid St. Lukes $ 3,397.24.
Plaintiff moves for summary judgment arguing that as no material facts are in dispute, he is entitled to judgment as a matter of law. He therefore seeks a finding that the defendant failed to follow the terms of the Contract. In opposition, Blue Cross argues that plaintiff is not entitled to summary judgment because the Contract "carves out" terms for inpatient hospitalizations in accordance with New York law. Plaintiff replies that if New York law has requirements contrary to ERISA, then the New York law is preempted by ERISA.
Defendant moves for summary judgment on three bases. First, plaintiff fails to make a prima facie case because no damages have been alleged. Second, plaintiff has failed to exhaust administrative remedies as required by ERISA. Third, plaintiff's action is time barred by the two-year limitation set by the Contract. These three threshold issues will be analyzed, followed by an analysis of the interrelated ERISA/state law/contract questions.
A. Summary Judgment Standard
Summary judgment must be granted when the pleadings, depositions, answers to interrogatories, admissions and affidavits show that there is no genuine issue as to any material fact, and that the moving party is entitled to summary judgment as a matter of law. Fed. R. Civ. P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Facts, inferences therefrom, and ambiguities must be viewed in a light most favorable to the nonmovant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986); Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir. 1983). Once the moving party has met the initial burden of demonstrating the absence of a genuine issue of material fact, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56; Liberty Lobby, Inc., 477 U.S. at 250; Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Matsushita Elec. Indus. Co., 475 U.S. at 587. At that point the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., 475 U.S. at 586. To withstand a summary judgment motion, sufficient evidence must exist upon which a reasonable jury could return a verdict for the nonmovant. Liberty Lobby, Inc., 477 U.S. at 248-49; Matsushita Elec. Indus. Co., 475 U.S. at 587.
B. Prima Facie Case--Damages
Defendant argues that the action must be dismissed due to plaintiff's failure to set forth any evidence of damages. It is undisputed that while defendant's coinsurance was based upon the DRG Rate of $ 3,708.78, plaintiff's coinsurance was based upon the amount billed by St. Lukes, $ 4,101.54. It is also undisputed that at the time the St. Lukes charges were incurred, plaintiff had previously paid $ 59.00 in coinsurance, leaving only $ 341.00 before meeting his $ 400.00 maximum for that year. Plaintiff's coinsurance as against the full billed amount would be $ 820.31.
Plaintiff's coinsurance based upon the DRG Rate would have been only $ 741.76.
These calculations indicate that coinsurance calculated based upon the total amount would result in plaintiff overpaying the hospital by $ 78.55.
Defendant argues that since plaintiff actually only paid $ 341.00, plaintiff suffered no monetary damages.
Defendant also points out that even if there were damages, the damages would only amount to $ 29.46. Defendant calculated this figure by comparing 20% of the portion of the total bill to which coinsurance was applicable, $ 1722.65, to 20% of the same portion of the DRG Rate, $ 1557.54. The logic of these calculations is not immediately apparent. However, a determination of whether or not plaintiff has suffered actual damages is not necessary.
Clearly in order to recover compensatory damages plaintiff must prove that he suffered such damages. However, lack of such damages is not fatal to his claim. In addition to seeking restitution for overpayments, plaintiff seeks declaratory, injunctive and other equitable relief. Accordingly, summary judgment for the defendant on this ground is inappropriate.
C. Exhaustion of Administrative Remedies
ERISA requires that every benefit plan provide notice in writing of any denial of a claim and the reasons for such denial. 29 U.S.C. § 1133. Further, the plan must provide for a reasonable opportunity for review of the denial. Id. ; 29 C.F.R. § 2560.503-1(e)-(h). Exhaustion of the administrative appeal process set forth by the ERISA plan is a prerequisite to judicial review. Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993).
The EOB provided by Blue Cross to plaintiff plainly states that an appeal from a denial of benefits must be submitted in writing within 60 days. Blue Cross argues that plaintiff failed to submit an appeal within 60 days, and therefore he is precluded from this suit. This argument must fail.
The issues in the instant case pertain to breach of fiduciary duty in administration of the ERISA plan. There is no claim that Blue Cross wrongfully denied a benefit. There is no notice by Blue Cross to plaintiff denying a claim, as required by ERISA, 29 U.S.C. § 1133. Accordingly, the appeal process set forth on the EOB is inapplicable in this case.
D. Statute of Limitations
The Contract provides that legal action against Blue Cross regarding denial of a claim must be brought within two years after the claim is rejected in writing. (Deetz Aff. Ex. A at 77.
) Defendant argues that this limitation time-bars this suit. However, the plain language of the section is clear: legal action pertaining to a claim denial must be brought within two years. Again, plaintiff does not claim that benefits were denied and this lawsuit is unrelated to denial of benefits. Thus, the two-year contractual limitations period is inapplicable to this action. Rather, the appropriate statute of limitations is six years. See Miles v. New York State Teamsters Conf. Pension & Retirement Fund Employee Pension Benefit Plan, 698 F.2d 593, 598 (2d Cir.), cert. denied, 464 U.S. 829, 78 L. Ed. 2d 108, 104 S. Ct. 105 (1983); 29 U.S.C. § 1113.
E. ERISA Claim
A primary goal of ERISA is to protect the participants in employee benefit plans. See 29 U.S.C. § 1001(b). This goal is effectuated, in part, by requiring plans to inform participants regarding their plans, by establishing obligations of fiduciary duties upon plan administrators, and by providing appropriate remedies should plan administrators fail to meet ERISA's requirements. See id.; see also New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 651, 115 S. Ct. 1671, 1674, 131 L. Ed. 2d 695 (1995)(explaining the ways in which ERISA protects plan participants).
Each plan must be established and administered pursuant to a written document. 29 U.S.C. § 1102(a)(1). The fiduciary of the plan must discharge its duties exclusively for the benefit of participants and their beneficiaries, and in accordance with the plan's governing documents. Id. § 1104(a)(1). A fiduciary may not participate in any transaction regarding the plan on behalf of a party with interests adverse to the plan. Id. § 1106(b). A fiduciary is liable to the plan for any loss resulting from a breach, and is "subject to such other equitable or remedial relief as the court may deem appropriate." Id. § 1109(a).
ERISA further provides for civil enforcement by a participant, permitting a participant to bring a civil action to recover benefits due under plan terms, to enforce rights under plan terms, or to clarify rights to future benefits under the plan terms. Id. § 1132(a)(1). Participants may also bring a civil action to enjoin violations of ERISA or the plan terms, or for other equitable relief to redress ERISA violations or to enforce ERISA provisions and plan terms. Id. § 1132(a)(3). A party to such civil action may be awarded reasonable attorney's fees and costs, in the court's discretion. Id. § 1132(g)(1).
Plaintiff seeks a declaration that the Contract required Blue Cross to pay specified percentages of providers' charges and that Blue Cross owes plaintiff and similarly situated Plan participants a fiduciary duty and it breached that duty. Plaintiff requests an injunction requiring Blue Cross to pay benefits as specified in the Contract, to maintain Blue Cross's payment percentage as specified in the Contract, to disgorge to the Plan or to participants as appropriate any amounts resulting from breaches of fiduciary duties, and to render an accounting of all amounts paid to providers based upon anything other than the percentages specified in the Plan. Thus, the issue to be determined is whether Blue Cross failed to administer the Plan in accordance with its terms, thereby breaching its fiduciary duties and violating ERISA.
Interpretation of contract language and determination of whether the contract is ambiguous is a question of law for the court. See Walsh v. Schlecht, 429 U.S. 401, 407-08, 50 L. Ed. 2d 641, 97 S. Ct. 679 (1977); Schiavone v. Pearce, 79 F.3d 248, 252 (2d Cir. 1996); Swaback v. American Info. Techs. Corp., 103 F.3d 535, 540 (7th Cir. 1996); Masella v. Blue Cross & Blue Shield, 936 F.2d 98, 107 (2d Cir. 1991); Vanvolkenburg v. Continental Cas. Co., 944 F. Supp. 198, 201 (W.D.N.Y. 1996). ERISA plan contracts are interpreted following federal common law, which has adopted state law canons of contract interpretation. Swaback, 103 F.3d at 540; Masella, 936 F.2d at 107; Vanvolkenburg, 944 F. Supp. at 201; see also Schiavone, 79 F.3d at 252 (contract interpretation in CERCLA case). ERISA plan language should be given its natural, ordinary meaning as would be understood by an average person. Swaback, 103 F.3d at 541; Vanvolkenburg, 944 F. Supp. at 201.
Additionally, where an ERISA plan provides that the plan administrator has discretion to interpret the contract and to construe its terms, the administrator's interpretation and construction is reviewed under an arbitrary or capricious standard. Jordan v. Retirement Comm. of Rensselaer Polytechnic Inst., 46 F.3d 1264, 1271 (2d Cir. 1995); Masella, 936 F.2d 98, 102-03 (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989). The administrator's interpretation is upheld if the administrator considered relevant factors and did not make a clear error of judgment. Jordan, 46 F.3d at 1271.
The Contract provides that the administrator has
the authority and discretion to interpret this contract and to construe any uncertain or disputed term or provision, including, but not limited to determining whether an individual is eligible for benefits and, if so, the amount of benefits available.
(Deetz Aff. Ex. C at 76.) This paragraph makes clear that Blue Cross has discretion in interpreting the Contract and construing its terms.
The Contract provides the following definition of coinsurance:
Coinsurance Defined. After you have met the deductible under this contract for the calendar year, we will pay 80% of the next $ 2,000 of Allowed Amounts incurred for covered services. You are responsible for the remaining 20% of the Allowed Amount that we do not pay. This is called your coinsurance. We only credit toward your coinsurance our Allowed Amount for the covered service.
(Deetz Aff. Ex. C at 18.) Thus, the participant's coinsurance is defined as 20% of the Allowed Amount, while Blue Cross's coinsurance is 80% of the Allowed Amount. Plaintiff contends that this definition is unambiguous--both the participant's and Blue Cross's coinsurance are determined by applying the appropriate percentage to the same amount, the Allowed Amount. Plaintiff argues, therefore, since Blue Cross calculated coinsurance by applying the appropriate percentages to two different amounts, Blue Cross failed to follow the Contract terms and breached its fiduciary duties, entitling plaintiff to summary judgment.
On the other hand, Blue Cross points out the Contract definition of "Allowed Amount" which specifically exempts hospital services from that definition. The contract defines Allowed Amount as follows:
With the exception of inpatient hospital care and inpatient psychiatric hospital care, every service we cover is assigned an amount, which is set forth in our payment policy. When you receive a covered service, we will pay the amount listed in our payment policy or your provider's charge, whichever is less, for the service you receive. When we use the term "Allowed Amount" in this contract, it means the amount set forth in our payment policy or your provider's charge, whichever is less.