JUNE 2012 BAD FAITH CASES: COURT RULES THAT STATE BAD FAITH CLAIMS ARE PREEMPTED BY THE FEDERAL EMPLOYEES HEALTH BENEFITS ACT (“FEHBA”) (Middle District)
In Pellicano v. Blue Cross Blue Shield Ass’n, the insured, a retired federal employee, filed objections to the Magistrate’s Report and Recommendation (“R&R”), which granted a motion to dismiss to the insurer and the U.S. office of Personnel Management (“OPM”). The insured’s bad faith claim arose from the processing of his application for medical equipment and the OPM’s decision to affirm only partial benefits. The insured also filed a motion for default judgment against the OPM.
Under the insured’s plan, several insurance companies provide coverage through the OPM. The named carrier in this case was the entity responsible for the insured’s claim. However, it rejected full benefits to the insured, approving only 65% of the cost of the equipment that he required as the result of his spinal cord injury.
The court first addressed the insured’s objection that the R&R improperly dismissed his claims as devoid of sufficient factual allegations. The court adopted the R&R on this issue because the insured never alleged more than mere conclusory statements. In fact, the objections contained the same insufficient factual allegations, warranting rejection by the court.
Second, the court examined the insured’s claim that FEHBA does not preempt state law bad faith claims. FEHBA establishes a comprehensive health program for federal employees, authorizing the OPM to contract with private healthcare carriers. However, most jurisdictions have held that the law preempts breach of contract, breach of fiduciary duty, tort, negligence, and fraud claims.
Additionally, according to the text of the statute, the only relief that may be granted is an order directing the OPM to require the carrier to pay the amount of benefits in dispute. As such, the court wholly adopted the Magistrate’s R&R because the insured’s bad faith claim fell outside the scope of permissible suits under FEHBA.
Lastly, the court rejected the insured’s motion for an entry of default judgment against the OPM. The R&R concluded that the insured’s service of process did not comport with Federal Rule 4(i)(1), which requires a party to serve the government with a copy of the Summons and Complaint. As the insured did not follow this procedure, the government could not have been delinquent in responding to the allegations, warranting an entry of default judgment. The court therefore adopted the R&R in full.