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GARVEY v. PRUDENTIAL INS. CO. OF AMERICA

April 13, 1984

JOSEPH D. GARVEY and FRANCES A. GARVEY, h/w
v.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, THE NATIONAL LEAGUE OF POSTMASTERS OF THE UNITED STATES, and UNITED STATES OFFICE OF PERSONNEL MANAGEMENT, COMPENSATION GROUP


Thomas N. O'Neill, Jr., United States District Judge.


The opinion of the court was delivered by: O'NEILL, JR.

THOMAS N. O'NEILL, JR., UNITED STATES DISTRICT JUDGE

 Plaintiffs are Joseph Garvey, a federal employee, and Frances Garvey, his wife. In November, 1980, Mr. Garvey enrolled in a Health Benefits Plan sponsored by the National League of Postmasters. *fn1" The contract of insurance consisted of three parts: an agreement entered into by the Office of Personnel Management (OPM) and the Postmasters (the carrier), a group policy issued to Postmasters by the Prudential Insurance Company of America (the underwriter) and a brochure of benefits published and distributed by OPM to beneficiaries of the Plan. It is agreed that the benefits section of the contract is contained in the brochure.

 In his health benefits registration form, Mr. Garvey elected high option coverage, which provided, among other things, unlimited benefits for private duty nursing care for himself and his dependents. *fn2" The Garveys' coverage *fn3" under the Plan became effective January 1, 1981.

 On July 31, 1981, while a patient at Episcopal Hospital, Mrs. Garvey suffered several strokes which left her a quadriplegic. She remained a patient at Episcopal until November 5, 1981, at which time she was transferred to Harrison House, a skilled nursing facility adjacent to Episcopal. She was discharged from Harrison House on February 26, 1982, and thereafter has received round-the-clock private duty nursing care in her home at an estimated cost of $ 9,000 to $ 13,000 per month. For the year 1982, this cost was paid or reimbursed by Prudential.

 The Postmaster's Plan is one of the 161 health benefit plans made available to federal employees pursuant to the Federal Employees' Health Benefits Act, Title 5 U.S.C. §§ 8901-13 ("FEHBA"). *fn4" The premium is paid in part by the employee and in part by the federal government according to a formula established by the statute, see Title 5 U.S.C. § 8906. The government's contribution is a sum equal to 60% of the average premium for six selected plans.

 Each year a contract is negotiated between OPM and each of the carriers of the health benefits plans. The final determination as to coverage is made by OPM, and the benefits to be provided are then defined in this contract. Benefits may be changed each year as a result of the negotiations. Premiums charged by the carriers are based on prior loss experience and the benefits to be provided. Employees are notified of changes in benefits by means of a brochure published annually by OPM for each health benefits plan, see Title 5 U.S.C. § 8907. *fn5" Each year, during an "open season" after benefit changes and premium rates are announced, federal employees are permitted to switch from one plan to another regardless of the state of their health.

 During the 1981 contract negotiations, *fn6" OPM requested that all plans make significant reductions in their benefits packages because OPM's budget was not sufficient to pay the government's share of the cost of the plans as proposed. OPM negotiated with each plan to secure the requested reductions. Postmasters (the Plan with the "richest" benefits, N.T. II 77), *fn7" was able to reduce the benefits provided in their 1982 plan without limiting the private duty nursing benefit. As a result, it became the only one of the ten health benefits plans open to all federal employees which provided unlimited private duty-nursing benefits. *fn8"

 During the 1982 negotiations Postmasters requested permission to reduce the unlimited private-duty nursing benefit for 1983. Reductions in other benefits not relevant to this case were also proposed. The reduction in unlimited private-duty nursing benefits was approved by OPM, which for some years had been concerned about the "rich benefit structure" of the Postmasters Plan and its escalating rates (N.T. II 78). OPM was cognizant of the problems encountered by Postmasters as the only open plan retaining the right to unlimited private-duty nursing benefits. Selection of the plan by all federal employees requiring this expensive care would force the cost of the Postmasters plan to escalate, and would reduce the ability of the plan to compete with other health benefit plans. OPM believed that the reduction in benefits might contain costs, improve reserves and prevent adverse selection. A reduction in unlimited private-duty nursing benefits to a maximum amount of $ 10,000 per year was disclosed by the 1983 Postmasters Benefits Plan brochure, which was distributed in 1982 to plan enrollees, including plaintiffs.

 In early 1983, at the request of OPM, Postmasters agreed to extend unlimited private-duty nursing benefits for one additional year to those enrollees in the Garveys' situation. Counsel for plaintiffs was notified of this agreement by letter dated May 16, 1983. Since the premiums to be paid to the underwriter had been calculated on the basis of the $ 10,000 maximum, Postmasters, rather than Prudential, paid for the additional cost of providing the benefit to Mrs. Garvey in 1983.

 The 1984 benefits package provided by Postmasters includes the $ 10,000 limitation on private duty nursing care benefits. Thus, during 1984 plaintiffs are entitled to receive benefits for private-duty nursing care, but only up to that maximum amount. *fn9"

 The Complaint, naming Prudential, Postmasters and OPM as defendants, was filed on February 10, 1983. Jurisdiction is based on Title 28 U.S.C. §§ 1332 and 1346. The jurisdictional provision of FEHBA, Title 5 U.S.C. § 8912 *fn10" was not specifically invoked. The Complaint alleges that the termination of the nursing benefits which plaintiffs were receiving constitutes a breach of contract (Complaint, para. 13 and see N.T. II 3-4). Plaintiffs request that defendants be directed to restore the benefits which existed prior to January 1, 1983, and be permanently enjoined from terminating those benefits. Plaintiffs also seek damages. Defendants deny liability; Prudential and OPM assert that, in any event, they are not subject to suit. *fn11"

 Plaintiffs filed a Motion for a Preliminary Injunction on December 15, 1983. After hearing, the Motion was denied because plaintiffs had failed to demonstrate a likelihood of success on the merits sufficient to justify preliminary relief. After final hearing, without jury, all parties submitted Requests for Findings of Fact and Conclusions of Law and supporting Memoranda.

 Plaintiffs advance two theories in support of recovery:

 (1) Prior to January 1, 1983, they acquired a contractually vested right to unlimited benefits for private-duty nursing care. Consequently, the subsequently imposed limitation of $ 10,000 on such benefits (without their consent) constituted a breach of contract;

 (2) They are entitled to unlimited benefits for private-duty nursing care by virtue of the catastrophic benefits ...


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