Archive for the 'NJ – ERISA Preemption' Category

OCTOBER 2018 BAD FAITH CASES: STATE CLAIMS PRE-EMPTED BY ERISA (New Jersey Federal)

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This is an ERISA pre-emption case. In dismissing the plaintiff’s state common law claims, the court made the following observations.

“[T]he Third Circuit has noted that claims for bad faith and breach of contract … ordinarily fall within the scope of ERISA preemption, if such claims relate to an ERISA-governed benefits plan.”

“[C]laims alleging breach of contract, bad faith, or negligence in connection with the denial of benefits under an ERISA-covered plan are preempted under ERISA, because those claims ‘are premised on the existence of the plan[.]’”

“By disputing its right to reimbursement for a medical procedure performed on a patient insured by an ERISA plan, Plaintiff’s common law causes of action are quintessential ERISA claims.”

“Plaintiff’s claims ‘seek reimbursement of billed medical charges and relate to challenges to the administration of benefits rather than the quality of the medical treatment performed.’”

“A dispute over reimbursement for a procedure performed on a patient insured by an ERISA plan is ‘squarely within ERISA’s ambit.’”

“Plaintiff alleges no facts that support the existence of a contract sufficiently independent from the patient’s Plan, as was present in Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 400 (3d Cir. 2004).”

Date of Decision: September 26, 2018

Plastic Surgery Center v. Aetna Life Ins. Co., U. S. District Court District of New Jersey Civil Action No. 17-13467 (FLW) (LHG), 2018 U.S. Dist. LEXIS 166514 (D. N.J. Sept. 26, 2018)

JUNE 2018 BAD FAITH CASES: NEW JERSEY FEDERAL JUDGE REITERATES THAT ERISA PRE-EMPTS COMMON LAW BAD FAITH CLAIMS (District of New Jersey)

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Federal District Judge Wolfson recently issued two opinions in which the court reiterates that ERISA pre-empts New Jersey common law insurance bad faith claims.

Dates of Decision: May 31, 2018 and June 7, 2018

Atlantic Shore Surgical Assocs. v. Horizon Blue Cross Blue Shield of N.J., U. S. District Court, District of New Jersey Civil Action No.17-cv-07534 (FLW) (DEA), 2018 U.S. Dist. LEXIS 90734 (D.N.J. May 31, 2018) (Wolfson, J.)

Advanced Orthopedics & Sports Med. Inst. v. Empire Blue Cross Blue Shield, U.S. District Court New Jersey Civil Action No. 17-cv-08697 (FLW) (LHG), 2018 U.S. Dist. LEXIS 96814 (D.N.J. June 7, 2018) (Wolfson, J.)

APRIL 2018 BAD FAITH CASES: ERISA PREEMPTS BAD FAITH CLAIMS (New Jersey Federal)

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Relying on prior Third Circuit appellate and New Jersey district court precedent, the district court judge ruled that ERISA preempted the plaintiff’s state law bad faith claims. The court listed numerous district court cases supporting this position, summarizing: “Consistent with the jurisprudence of the Supreme Court and the Third Circuit, courts within this District routinely hold that common law claims alleging breach of contract, bad faith, or negligence in connection with the denial of benefits under an ERISA-governed plan are preempted.”

The court had already made clear “[a]t the outset, the Court finds that Plaintiff’s claims for breach of contract (Count One), bad faith (Count Two), and malicious, willful, wanton, and/or reckless disregard of Plaintiff’s rights (Count Three) undoubtedly relate to the Plan, and thus, are preempted under ERISA. As the Third Circuit has explained, claims alleging breach of contract, bad faith, or negligence in connection with the denial of benefits under an ERISA-covered plan are preempted under ERISA, because those claims are ‘are premised on the existence of the plan….’”

Date of Decision: March 22, 2018

Hocheiser v. Liberty Mutual Insurance Co., Civil Action No. 17-6096 (FLW) (DEA), 2018 U.S. Dist. LEXIS 47870 (D.N.J. Mar. 22, 2018) (Wolfson, J.)

JANUARY 2018 BAD FAITH CASES: NEW JERSEY BAD FAITH CLAIMS PREEMPTED BY ERISA (District of New Jersey)

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The decedent-insured held a long-term disability policy obtained through his employer. After receiving short and long-term disability benefits the insurer gave notice of termination that the benefits would terminate unless the insurer was provided with an update on his condition. The insured and insurer then disputed over whether he was totally disabled; a dispute which went on past his death as to benefits. Suit was brought for breach of the implied covenant of good faith and fair dealing and bad faith denial of insurance benefits, among others. The insurer moved to dismiss arguing ERISA pre-emption.

The Third Circuit has set forth the following test on whether a policy falls within ERISA coverage: “an ERISA plan ‘is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.” The test also states that the “crucial factor” is “whether the employer has expressed an intention to provide benefits on a regular and long-term basis.” In this case “it is undisputed” that the policy at issue falls under ERISA.

Plaintiff’s bad faith claims and other state law claims were preempted by ERISA. The ERISA statute makes clear that it preempts all state laws that “relate to” employee benefit plans. “A ‘state law relates to an ERISA plan if among other things, the rights or restrictions’ created by the state law ‘are predicated on the existence of . . . an [ERISA] plan.” Here, the bad faith claims and other state law claims, were predicated on the employer plan, and thus preempted under ERISA.

The plaintiff argued that the policy should fall under ERISA’s safe harbor provision. Under the safe harbor provision, a policy is not governed by ERISA when it is neither established nor maintained by the employer. However, because the record clearly indicated that the employer created a comprehensive package of insurance coverage, the Court ruled that the safe harbor provisions do not apply. As such, the Court dismissed all of the plaintiff’s state law claims, including the bad faith claims.

Date of Decision: December 28, 2017

Rizzo v. First Reliance Std. Life Ins. Co., No. 17-745, 2017 U.S. Dist. LEXIS 212484 (D. N.J. Dec. 28, 2017) (Sheridan, J.)

APRIL 2016 BAD FAITH CASES: AN INSURER’S DELAY IN ISSUING A COVERAGE DECISION IS NOT, ON ITS OWN, SUFFICIENT TO SUPPORT A BAD FAITH CLAIM (New Jersey Federal)

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In Puzzo v. Metropolitan life Insurance Co., the Court held that an insured could not amend his declaratory judgment complaint to include allegations of bad faith where he failed to allege he was entitled to coverage as a matter of law.

The insured suffered serious brain injuries as a result of a car collision. Pursuant to two insurance policies, the insurer provided the insured with short term disability benefits under both policies, and for approximately two years, provided long term disability benefits.  Approximately two years after the insured’s injury, the insurer terminated the long term disability payments under both policies.  Plaintiff appealed the insurer’s decision under ERISA’s administrative appeals process, but the insurer never issued a final decision on appeal.

The insured brought a declaratory judgment action against the insurer and later sought to amend his complaint under Fed. R. Civ. P. 15(a) to include claims of bad faith.  In the insured’s Motion to Amend he alleged that the insurer acted in bad faith by withholding documents for long periods of time and for failing to obtain necessary medical records before the deadline for issuing a decision on the appeal expired.

The Court denied Plaintiff’s Motion to Amend finding that as alleged, the proposed amendment did not contain sufficient facts to support a finding of bad faith as a matter of law, and was therefore futile.  The Court held that the critical question in a bad faith case was whether there was a “fairly debatable” reason for denying coverage, or in a “delay case”, for delaying a coverage opinion.  Although the insured sufficiently plead that the insurer delayed in responding to his appeal, these allegations were insufficient to show bad faith.  The insured also had to plead that coverage under the policy was not “fairly debatable” and the insurer knew or recklessly disregarded this lack of a reasonable basis when it delayed its coverage decision.   The Court denied the insured’s Motion to Amend, holding that delay, without a corresponding duty to provide coverage, cannot provide a basis for bad faith.

Date of Decision: March 29, 2016

Joseph Puzzo v. Metropolitan Life Ins. Co., NO. 3:15-cv-3190, 2016 U.S. Dist. LEXIS 40766 (D.N.J. March, 29, 2016) (Wolfson, J.)

JULY 2014 BAD FAITH CASES: INSURER’S MOTION TO DISMISS HOSPITAL’S BAD FAITH BREACH OF CONTRACT CLAIM DENIED (New Jersey Federal Court)

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The plaintiff/counterclaim-defendant insurer brought claims against defendant/counterclaim-plaintiff hospital for failure to require patients to pay certain out-of-pocket expenses. The insurer originally brought a claim alleging that the hospital had violated ERISA by refusing to charge the expenses to patients. The hospital counterclaimed, alleging the insurer failed to reimburse the hospital for care given to its insureds.

In its counterclaim, the hospital alleges that, through an agent, the insurer entered into an oral agreement with the hospital in which the insurer waives its right to audit the hospital in exchange for a substantially discounted rate. The insurer alleges that it later discovered that the hospital was not charging patients co-insurance in accordance with a cost-sharing plan between them. After the hospital declined to charge these costs to patients, the insurer stopped paying for patient care.

The hospital, however, contends that it was never required to initiate a cost-sharing plan, but did so under pressure from the insurer. Further, the hospital states that the insurer withheld coverage pending an audit which was allowed by the hospital in contravention to its prior discount agreement. The insurer brought suit against the hospital, alleging fraud, unjust enrichment, and ERISA violations. The hospital countersued, claiming breach of contract, breach of the implied covenant of good faith and fair dealing, and common law fraud.

In considering the insurer’s motion to dismiss the hospital’s claim of breach of the implied covenant of good faith and fair dealing, Judge Martini found that the hospital’s complaint satisfies the pleading standards set forth in F.R.C.P. 8(a).

The court stated that, in New Jersey, “the implied covenant of good faith and fair dealing is inherent in every contract, and requires that neither party shall do anything which would have the effect of destroying or injuring the right of the other party to receive the full fruits of the contract . . . “

Further, a plaintiff must allege bad faith in order to prevail on a claim for breach of the covenant.

The court found that the hospital’s allegations regarding the oral agreement with the insurer’s agent, although unlikely, did state a valid claim for breach of the implied covenant if viewed in the light most favorable to the hospital. The court rejected the insurer’s arguments that the alleged oral agreement was a “re-pricing agreement” instead of a contract, and that the alleged contract was between the hospital and the agent, not the insurer.

The insurer also alleged that the hospital had failed to plead bad faith; however, the Court found that allegation that the insurer agreed to pay the claims after finishing the audit but failed to do so was a sufficient to survive a motion to dismiss.

The Court denied the insurer’s motion to dismiss the breach of contract and breach of the implied covenant. The Court did grant the motion with regard to the fraud claim, but gave the hospital leave to amend.

Date of Decision: June 11, 2014

Connecticut General Life Insurance Company v. Roseland Ambulatory Surgery Ctr., 2014 U.S. Dist. LEXIS 79189, No. 2:12-05941  (D.N.J. June 11, 2014) (Martini, J.)

APRIL 2013 BAD FAITH CASES: COURT DISMISSES VIOLATION OF THE DUTY OF GOOD FAITH AND FAIR DEALING SUIT AS PREEMPTED UNDER FEDERAL ERISA STATUTE (New Jersey Federal)

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In MHA, LLC, v. Aetna Health, Inc., a healthcare provider brought ERISA and state law claims against an insurance carrier to recover $39 million in damages after the carrier allegedly underpaid for services that plan beneficiaries had received at one of the healthcare provider’s facilities. Originally, the dispute arose because the carrier continued to pay the healthcare provider at the rates governed by a contract, which the carrier had entered into with an entity later purchased by the healthcare provider in this case. The healthcare provider essentially argued that the contract no longer governed the parties’ current relationship.

The court granted the carrier’s motion to dismiss all counts, including the state law bad faith claim that was preempted by ERISA.

Date of Decision: February 25, 2013

MHA, LLC v. Aetna Health, Inc., No. 12-2984, 2013 U.S. Dist. LEXIS 25743, U.S. District Court for the District of New Jersey (D.N.J. Feb. 25, 2013) (New Jersey Federal) (Chesler, J.)