The opinion of the court was delivered by: Richard J. Sullivan, District Judge
Plaintiff Nicholas Scarangella brings this action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., alleging that his wife was wrongfully denied benefits under the terms of an employee benefits plan that was insured by Defendant Group Health Inc. ("GHI"), and administered by Plaintiff's employer, Defendant Scarangella & Sons, doing business as Village Fuel ("Village Fuel"). GHI brings counterclaims under ERISA for restitution, as well as rescission and reformation of its insurance contract with Village Fuel. GHI also brings three similar crossclaims against Village Fuel for restitution, rescission, and reformation. Finally, Village Fuel brings a crossclaim against GHI for breach of fiduciary duty under ERISA.
Before the Court are motions for summary judgment by GHI and Village Fuel. For the reasons set forth below, GHI's motion is denied, Village Fuel's motion is granted in part and denied in part, and the Court enters partial summary judgment in favor of Plaintiff, sua sponte.
Village Fuel is a Long Island heating and plumbing services company, which was created in 1949 by Plaintiff's father. (O'Mahony Decl. Ex. A, Pl.'s Interrog. Resp. 5.) Village Fuel is named as a party in its capacity as the administrator of the Village Fuel Employee Benefits Plan (the "Village Fuel Plan"). Patrick Scarangella is Plaintiff's brother and the President of Village Fuel. (Id.)
In the spring of 2002, Village Fuel entered into a contract with GHI (the "GHI Contract" or "Contract"), which provided for health insurance coverage as part of the Village Fuel Plan. On June 1, 2002, Plaintiff enrolled in the health insurance coverage program of the Village Fuel Plan, as provided for under the terms of the GHI Contract.
Plaintiff received health insurance coverage from GHI for approximately two years. However, on July 19, 2004, GHI notified Village Fuel that it was retroactively terminating the GHI Contract because of alleged inaccuracies in the documents submitted in support of Village Fuel's initial application for health insurance coverage. Specifically, GHI asserted that Village Fuel falsely represented that Plaintiff was eligible for coverage as a "Full-Time Employee," as that term is defined in the GHI Contract. This litigation centers around the parties' efforts to determine their rights and liabilities following GHI's notice of termination of the GHI Contract.
1. Village Fuel's Application For Insurance Coverage
On April 24, 2002, Village Fuel submitted a "Small Employer Group Application Form" to GHI, seeking healthcare benefits for its employees. (GHI 56.1 ¶ 1.) Village Fuel indicated on the application that its employees became "eligible for health coverage" under the Village Fuel Plan after three months of employment, and that it had eleven eligible employees at the time of the application. (Id. ¶¶ 3-4, 8.) Village Fuel also attached to the application a document entitled "Quarterly Tax Combined Withholding, Wage Reporting and Unemployment Insurance" (a "NYS-45 Form"), which identified eleven employees who were on Village Fuel's payroll during the first quarter of 2002, i.e., the period between January 1, 2002 and March 31, 2002. (Id. ¶ 4.)
The NYS-45 Form submitted by Village Fuel in connection with its application indicated that an employee named "Scarangella[,] V[ito]" was employed by Village Fuel and had received $450 in wages during that quarter. (Id. ¶ 5.) The same form indicated that an employee named "Scarangella[,] N[icholas]" was employed by Village Fuel and had also received $450 in wages during the same period. (Id. ¶¶ 6, 7.)
Patrick Scarangella signed the application form on behalf of Village Fuel in his capacity as Village Fuel's President. (Brand Aff. Ex. A-2 at GHI 1303.) The following text appears above his signature: "The information provided in this application is true to the best of my knowledge. I hereby authorize any person, organization or other entity to release to GHI any information requested by GHI in connection with the processing of its application." (Id.)
In a May 17, 2002 letter to GHI that was written on Village Fuel letterhead, Patrick Scarangella supplemented Village Fuel's application by representing that he and Plaintiff "were employed with Village Fuel prior to the dates of actual hire. . . . in a part time capacity and not on the payroll." (Id. at GHI 1335.)
Based on Village Fuel's application, GHI issued to Village Fuel the GHI Contract. (GHI 56.1 ¶ 14.) The full title of the document was "Group Contract For Community-Rated Small Groups," and the Contract became effective on June 1, 2002. (Id.) The GHI Contract named Village Fuel as the policyholder and stated that "[o]nly eligible Full-Time Employees and their spouses and eligible dependents, may be covered under this Contract." (Id. ¶ 25.)
Under the terms of the Contract, Village Fuel agreed to "provide GHI complete and accurate records of each Subscriber and his or her dependents," and to "notify GHI of any changes in enrollment, such as termination of employment . . . ." (Id. ¶ 28.) The Contract also required that "[a]ll such records and accounts shall be available at all times for audit and inspection by GHI." (Id. ¶ 29.)
In order to be eligible for health insurance coverage under the Contract, an applicant was required to be a "Full-Time Employee" of Village Fuel. (Diaz Aff. Ex. A at GHI 663.) The Contract defined "Full-Time" as "actively work[ing] twenty (20) hours per week or more." (Id. at GHI 660.) The Contract's definition of "Employee" adopted the definition of that term used by the Internal Revenue Service. (Id.) Additionally, in order to be eligible for coverage under the GHI Contract, an "Employee" had to have been working at Village Fuel for at least three months prior to the time he or she applied for enrollment. (GHI 56.1 ¶ 3.)
As to GHI's obligations, the Contract stated that:
GHI shall provide health benefits for a person after [Village Fuel] advises GHI that such person is a [person] eligible for coverage under the Contract. GHI or [Village Fuel] may later find such person is not eligible under this Contract. [Village Fuel] shall then reimburse GHI for the amount of the Provider charges actually paid by GHI on behalf of the person. [Village Fuel] shall immediately terminate the person who is not eligible.
(Diaz Aff. Ex. A at GHI 666.) In regard to GHI's provision of insurance benefits payments, the Contract stated that "[a]ll benefits provided [by GHI] under this Contract shall be paid to or on behalf of the [Employee] as they accrue." (Id. at GHI 672.) GHI reserved the right to, "at its option, pay benefits directly to the Provider rendering services. Any such payment shall completely discharge GHI's liability with respect to the amount so paid." (Id.)
The Contract also provided that "GHI reserves the right to immediately terminate the coverage of any person who is found by GHI not to be eligible under this Contract." (GHI 56.1 ¶¶ 15-16.) The Contract described several additional potential grounds for termination. (See Diaz Aff. Ex. A at GHI 671.) One such provision reserved GHI's right to "terminate this Contract immediately upon written notice if the Policyholder has performed an act or practice that constitutes fraud or has made an intentional misrepresentation of a material fact under the terms of the Contract." (Id.)
3. The Insurance Certificate
After enrolling in the health insurance coverage provided by GHI as part of the Village Fuel Plan, Village Fuel employees were provided with a "Certificate of Health Insurance" from GHI (the "Insurance Certificate" or "Certificate"). (GHI 56.1 ¶ 34; see also Diaz Aff. Ex. C.) The Insurance Certificate stated that, pursuant to the GHI Contract, "GHI will provide the benefits described in this booklet to covered persons." (Diaz Aff. Ex. C at 1.)
The Certificate described in detail the types of medical services covered by the GHI Contract, and stated that "[i]n order to request benefits, you must file a claim with GHI." (Id. at 2.) It also described the process by which GHI would determine whether a healthcare service was covered by the GHI Contract, and set forth deadlines by which claimants would be required to provide additional information to support their benefits claims, if necessary. (Id. at 3-4.)
Section nineteen of the Insurance Certificate was entitled: "Filing of Claims and Appeals." (Id. at 33.) The section began by indicating that "[c]laims will usually be filed directly with GHI by Hospitals and Participating Providers. All Claims must be filed within the time limits set forth below." (Id.) The Certificate also instructed that "[i]n order to receive benefits, you must promptly complete and file your claim form . . . . within eighteen (18) months of the date upon which a service has been rendered." (Id. at 34.)
Under a subheading in the same section entitled "Grievances," the Certificate stated that "[i]f you do not agree with a decision made by GHI . . . , you may file a grievance with GHI. . . . You must file the grievance within one hundred and eighty (180) days from the date that you received notice of GHI's decision." (Id.) In addition to the process for filing grievances with GHI, the Certificate also described both an "internal" appeal process for seeking review of coverage decisions within GHI, and an "external" appeal process in which, under some circumstances, GHI's decisions could be reviewed by New York State's Department of Insurance. (Id. at 34-37.)
Finally, the Insurance Certificate contained provisions regarding termination of coverage that were similar to those in the GHI Contract. (See id. at 38.) Specifically, the Certificate stated that coverage "will terminate" if, inter alia: (1) the subscriber to the insurance policy "engage[s] in fraud or intentionally make[s] untrue statements on any forms related to [his or her] coverage under this policy," or (2) the "Contract between [Village Fuel] and GHI terminates." (Id. at 38.)
4. Plaintiff's Application For Enrollment In GHI's Insurance Coverage
Although the document is undated, Plaintiff submitted an application for enrollment in the health insurance coverage provided by the Village Fuel Plan under the terms of the GHI Contract (the "enrollment application"). (GHI 56.1 ¶ 11.) The application stated that Plaintiff's address was "6410 River Run Blvd., Spring Hill, FL 34607." (Brand Aff. Ex. A-2 at GHI 1323.) The enrollment application was signed by Plaintiff and authorized by Patrick Scarangella, who signed the document on behalf of Village Fuel. (Id.) The back of the enrollment application stated that "[a]ny person who knowingly and with intent to defraud any insurance company . . . files an application for insurance or statement of claim concerning any materially false information . . . commits a fraudulent insurance act, which is a crime . . . ." (Id. at GHI 1324.)
Plaintiff's enrollment application indicated that his employment at Village Fuel began on June 1, 2001, and listed Plaintiff's wife -Carolyn Scarangella - as a dependent "to be covered" by the Village Fuel Plan. (Id. at GHI 1323.) Plaintiff's enrollment application was approved by GHI, after which his coverage for hospital treatment became effective on June 1, 2002 and his broader medical coverage became effective on August 1, 2002. (Id.)
Plaintiff received one of the aforementioned Insurance Certificates, see supra Section I.A.3, which contained the terms described above. (Pl.'s 56.1 ¶ 34; see also Diaz Aff. Ex. C.) In December 2003, Village Fuel again certified that Plaintiff was eligible for insurance coverage under the terms of the GHI Contract. (Village Fuel 56.1 ¶ 33.) Plaintiff and his wife received health insurance coverage until GHI terminated the Contract with Village Fuel on July 19, 2004.
5. GHI's Inquiry Regarding Plaintiff's Eligibility For Benefits
On June 24, 2004, GHI mailed Plaintiff a letter stating that it was "reviewing the membership of [Village Fuel] for compliance with GHI Group Guidelines." (GHI 56.1 ¶ 35.) The letter requested that Plaintiff provide payroll and tax documents from the previous three years, as well as a notarized letter from Village Fuel verifying Plaintiff's job description, the dates of his employment, his hours at the job, and his salary. (Brand Aff. Ex. A-1 at GHI 1298.)
On July 6, 2004, apparently in response to GHI's letter to Plaintiff, Village Fuel submitted a series of state and federal tax documents relating to Plaintiff's employment between January 1, 2002 and March 31, 2004. (Id. Ex. A-5.) The forms supplied by Village Fuel provided an incorrect Social Security Number for Plaintiff. (GHI 56.1 ¶¶ 39, 42.) There were also discrepancies between the NYS-45 Form submitted in July 2004 that purported to cover the first quarter of 2002, and the NYS-45 Form covering the same period that was initially submitted by Village Fuel in connection with its April 24, 2002 application. Specifically, the NYS-45 Form that was submitted in 2002 stated that Plaintiff and Vito Scarangella each earned $450.00 during that quarter. (Brand Aff. Ex. A-2 at GHI 1315.) However, the NYS-45 Form relating to the same period that was submitted by Village Fuel in July 2004 did not list either Plaintiff or Vito Scarangella as employees. (Id. Ex. A-5 at GHI 1574.)
6. GHI's Termination of toh he Contract
On June 18, 2004, Geraldine Brand, an investigator in GHI's "Special Programs Investigations Unit," was assigned to review Plaintiff's eligibility for benefits. (O'Mahony Decl. Ex. C at GHI 1200.) On June 24, 2004, GHI submitted a complaint form regarding Plaintiff to the Frauds Bureau of the New York State Insurance Department. (Id. at GHI 1194.) The form was signed by Brand and stated that "[e]ligibility of subscriber is questionable. Sub[scriber] lives in Florida but is listed on tax documents as an employee at a New York business." (Id.) Brand identified both Plaintiff and Village Fuel in the complaint form as "parties to the suspect transaction." (Id.)
In a letter dated July 19, 2004 that was addressed to Patrick Scarangella at Village Fuel, GHI "terminat[ed] health insurance coverage for [Village Fuel]," effective June 1, 2002. (Brand Aff. Ex. A-1 at GHI 1223; see also GHI 56.1 ¶ 50.) The letter explained that the termination was based on "discovery of passed [sic] ineligible group activity. In 2002 your group failed to properly comply with the established Underwriting guidelines for members of your group." (Brand Aff. Ex. A-1 at GHI 1223.) The letter stated further that, "[u]nder the circumstances, GHI will not offer any continuation of coverage or conversion plans to past group affiliates or dependents. This affects all subsequent claim submissions irrespective of date of service as well as claims payments made to ineligible persons." (Id.)
On July 20, 2004, Village Fuel's accountant, Steven Boccio, called Brand regarding GHI's July 19 letter to GHI. (Village Fuel 56.1 ¶ 6.) Brand explained GHI's reasons for terminating Village Fuel's benefits, and Boccio requested additional copies of the documents that were attached to Village Fuel's July 6, 2004 letter. (See Brand Aff. Ex. A-1 at GHI 1211.)
In a phone call on July 21, 2004, Boccio told Brand that he was responsible for the error regarding Plaintiff's Social Security Number, but he then provided Brand with a third Social Security Number that did not match the number that appeared on either of the NYS-45 Forms that had been previously submitted. (Id.) Boccio and Brand then called Plaintiff together via conference call, and Plaintiff provided a Social Security Number that matched the number provided on the documents that were submitted by Village Fuel in 2002. (Id.) However, when asked by Brand, Plaintiff refused to explain the other discrepancies in the NYS-45 Forms regarding when and whether he was actually employed by Village Fuel in the First Quarter of 2002. (Id.)
On July 21, 2004, James C. Roca, an insurance agent who assisted Village Fuel in the preparation of its April 24, 2002 application to GHI, called GHI and spoke to Brand. (Id.) Roca apparently "conceded" that the discrepancies on the different NYS-45 Forms regarding the various Social Security Numbers and the wages received by Plaintiff during the first quarter of 2002 were "odd," and he indicated that he "would have questioned" these submissions. (Id.)
Finally, on July 22, 2004, an attorney named Joel Silkowitz wrote to GHI on behalf of Village Fuel in order "to respond to [GHI's] July 19, 2004 fax with a retroactive notice of cancellation of more than two years." (Id. at GHI 1212.) The letter asserted that GHI's termination was "shocking based on the dates involved and coupled with the fact that [GHI had] received and cashed premiums through June 2004." (Id.) Silkowitz stated that GHI's decision would be "vigorously opposed based upon the above along with the fact that you have offered no valid explanation for your act." (Id.)
According to an entry by Brand in the database of GHI's Special Programs Investigations Unit, the investigation was "sent to legal" - presumably the legal department of GHI - in July 2004. (Id. at GHI 1207.) The database entry also states that, as of September 30, 2004, GHI was "in litigation," that coverage for both Plaintiff and Village Fuel had been terminated effective June 1, 2002, and that "[n]o demand is being requested from [Village Fuel]." (Id.)
On May 23, 2006, Brand wrote a letter to the Frauds Bureau of the New York State Insurance Department, which stated that "[b]ased upon our review, we have closed this ...