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November 10, 1997

UTICA-WATERTOWN HEALTH INSURANCE COMPANY, INC., f/k/a Blue Cross and Blue Shield of Utica-Watertown, Inc., Defendant.

The opinion of the court was delivered by: HURD


 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, *fn1" 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.

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"). *fn2" 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. *fn3" Plaintiff's coinsurance based upon the DRG Rate would have been only $ 741.76. *fn4" These calculations indicate that coinsurance calculated based upon the total amount would result in plaintiff overpaying the hospital by $ 78.55. *fn5" 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 ...

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