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HOME FOR CRIPPLED v. PRUDENTIAL INS. CO. OF AMERIC

June 27, 1984

HOME FOR CRIPPLED CHILDREN d/b/a REHABILITATION INSTITUTE OF PITTSBURGH, Plaintiff
v.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, PENNSYLVANIA AUTOMOTIVE ASSOCIATION INSURANCE TRUST FUND, AND CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Defendants



The opinion of the court was delivered by: MANSMANN

 This matter is before the Court on cross-motions for summary judgment filed by Plaintiff Home for Crippled Children d/b/a Rehabilitation Institute of Pittsburgh (the "Home") and by Defendants Prudential Insurance Company of America ("Prudential"), Pennsylvania Automotive Association Insurance Trust Fund ("PAA") and Connecticut General Life Insurance Company ("Connecticut General"). *fn1" Also before the Court is a motion to dismiss filed by Connecticut General with respect to a cross-claim filed by Prudential and PAA. Plaintiff brought this action to recover benefits under group insurance policies. For the reasons set forth below, Plaintiff's motions against Prudential and PAA are granted and their cross-motions against Plaintiff are denied. Plaintiff's motion against Connecticut General is denied and the motion filed by Connecticut General for summary judgment on its counterclaim is granted. Finally, Connecticut General's motion to dismiss the cross-claim is granted.

 * * *

 FACTUAL BACKGROUND

 The Home is a Pennsylvania corporation with its principal place of business in Pittsburgh. The Home is engaged primarily in providing rehabilitation services to children.

 Prudential and Connecticut General are incorporated and have their principal places of business in states other than Pennsylvania.

 PAA is a trust with its principal place of business in Harrisburg, Pennsylvania.

 Jason Sentner, child of Robert and Deborah Sentner, *fn2" was born on October 9, 1976 with cerebral palsy. His cerebral palsy was diagnosed in December 1977 by Anna Chorazy, M.D.

 The Home treated Jason for his cerebral palsy on an outpatient basis during 1979 and 1980. Because Jason failed to progress under the outpatient treatment, he was admitted to the Home as an inpatient on or about January 8, 1981. Jason remained an inpatient at the Home until August 21, 1981, after which time he continued to receive treatment and therapy from the Home on an outpatient basis.

 At various times from August 1, 1977 through August 14, 1980, Robert Sentner was an insured under a health and welfare plan (the "PAA Plan") provided to automobile dealers by PAA. *fn3" Additional premiums were paid for dependent coverage for Mr. Sentner's children, including Jason. The Plan provides certain benefits under group insurance policies purchased from Prudential. *fn4" PAA paid for certain outpatient treatment that Jason received in 1979 and 1980.

 In the fall of 1977, Deborah Sentner procured insurance coverage for herself through her employer, Servico, Inc. ("Servico"). Servico makes available to its employees insurance coverage under a group health and accident insurance policy issued by Connecticut General (the "Servico Policy"). *fn5" When Mr. Sentner's employment terminated, Mrs. Sentner procured dependent coverage under the Servico Policy in order to obtain insurance coverage for her children, including Jason. Jason was insured under the Servico Policy as of September 9, 1980.

 Both Robert and Deborah Sentner assigned their rights under their respective insurance programs to the Home for purposes of Jason's care and treatment.

 In August 1981, the Home submitted a claim to PAA in the amount of $54,654.00 for Jason's inpatient care during the period January 8, 1981 to August 21, 1981. PAA and Prudential denied the claim based upon Jason's condition and a provision in the PAA Plan called a "dependent deferral provision." PAA also noted that its previous payments were made in error. *fn6"

 Plaintiff then brought the present action against Prudential, PAA and Connecticut General to recover the cost of Jason's inpatient care at the Home from January 8, 1981 to August 21, 1981. *fn7" Plaintiff's claims against Prudential and Connecticut General are predicated upon diversity jurisdiction. Its claim against PAA is based upon section 502 of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1132.

 Connecticut General has filed a counterclaim against Plaintiff to recover the amount it allegedly overpaid beyond the $750 to which the Home was entitled under the pre-existing clause of the group policy. *fn8"

 Prudential and PAA have also filed a cross-claim against Connecticut General seeking contribution or indemnification.

 All parties have moved for summary judgment. Connecticut General has also moved to dismiss the cross-claim filed by Prudential and PAA.

 * * *

 APPLICABLE STANDARD

 Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may be entered only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

 The Court of Appeals for the Third Circuit has made clear that any doubts as to the existence of genuine issues of fact are to be resolved against the moving parties. Continental Ins. Co. v. Bodie, 682 F.2d 436, 438 (3d Cir. 1982); Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir. 1981). Further, the facts and inferences to be drawn from the facts must be viewed in the light most favorable to the party opposing the motion. Continental Ins. Co. v. Bodie, supra at 438; Betz Laboratories, Inc. v. Hines, 647 F.2d 402, 404 (3d Cir. 1981). *fn9"

 Under Rule 56(e), however, a party resisting a summary judgment motion may not rest upon the mere allegations or denials of his pleading. Ness v. Marshall, 660 F.2d 517, 519 (3d Cir. 1981). In opposing the motion, his response "must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him." Id.

 Where cross-motions for summary judgment are presented, each side essentially contends that there are no issues of material fact from the point of view of that party. The court must therefore consider each party's motion for summary judgment separately. Since each side is moving for summary judgment, each side bears the burden of establishing a lack of genuine issues of material fact. Such inherently contradictory claims do "not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives . . . determination whether genuine issues of material fact exist." Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968). Moreover, the standards under which the court grants or denies summary judgment do not change by virtue of cross-motions being presented. Daburlos v. Commercial Ins. Co. of Newark, N.J., 367 F. Supp. 1017, 1020 (E.D. Pa. 1973).

 As a general rule, courts do not favor the summary disposition of cases on their merits. Nevertheless, in an appropriate case, an early disposition may save the parties needless and often considerable time and expense which otherwise would be incurred during trial. Thus, summary judgment is a useful tool when the record reflects that there is no genuine dispute over the critical facts. See Peterson v. Lehigh Valley Dist. Council, 676 F.2d 81, 84 (3d Cir. 1982).

 With the above standard in mind, we shall proceed to consider the various claims and contentions of the parties.

 * * *

 I. CLAIMS AGAINST PRUDENTIAL AND PAA

 Prudential and PAA rely upon the dependent deferral provision in the PAA Plan as the basis for refusing to pay the Home the cost of Jason's inpatient care and treatment from January 8, 1981 to August 21, 1981. The provision in question, entitled "Deferment of a Dependent's Insurance," states:

 
The Employee is insured with respect to all the qualified dependents which he has or may later acquire, except as hereafter provided.
 
If, on the date the basic dependents coverage would otherwise become effective with respect to a qualified dependent, such dependent is confined in a hospital, the insurance with respect to that particular dependent will be deferred until the dependent's final discharge from the hospital.
 
If, on the date the dependents major medical insurance would otherwise become effective with respect to a qualified dependent, (except in the case of a new-born child), such dependent is confined in any institution for care or treatment of bodily disorder, mental infirmity or bodily injury or is unable because of one or more of them to carry on the regular and customary activities of a person in good health and of the same age and sex whether or not so confined, or was so confined or unable to carry on such regular and customary activities at any time during the thirty-one day period immediately prior thereto, the dependents major medical insurance with respect to such dependent will not then take effect. In lieu thereof, such insurance will, subject to any requirements of the Group Policy as to employee major medical insurance and basic dependents coverage, take effect on the last day of a period of thirty-one consecutive days during all of which such dependent carried on the regular and customary activities of a person in good health and of the same age and sex, and was at no time during such period so confined. However, if the Employee furnishes evidence of the insurability of such dependent, without expense to the Insurance Company, before the end of such period and the Insurance Company determines such evidence to be satisfactory as of a date prior thereto, then such insurance will take effect on such date, subject to any requirements of the Group Policy as to employee major medical insurance and basic dependents coverage. In no event shall the dependents major medical insurance take effect with respect to a qualified dependent, if such dependent received benefits equal to or more than the Individual Maximum applicable to qualified dependents when covered an Employee prior to becoming a qualified dependent, unless the Employee furnishes, without expense to the Insurance Company, evidence of insurability satisfactory to the Insurance Company, of such dependent.

 Plaintiff contends that the provision in the PAA Plan is unenforceable under a case decided by the Commonwealth Court of Pennsylvania, Life Ins. Co. of No. America v. Commonwealth Ins. Dept., 43 Pa. Commw. 282, 402 A.2d 297 (1979).

 Alternatively, Plaintiff asserts that the provision is unenforceable because it imposes a limitation which is more stringent than that permitted by the regulations of the Pennsylvania Insurance Commissioner (the "Commissioner").

 Plaintiff further argues in the alternative that Prudential and PAA have waived their right to enforce the dependent deferral provision or are estopped from raising the provision as a defense because PAA paid the Home's claims arising out of Jason's outpatient treatment.

 Prudential and PAA contend that the case proffered by Plaintiff, Life Ins. Co. of No. America, supra, is not applicable to the instant case.

 They further assert that the dependent deferral provision is less restrictive than that permitted by the Commissioner's regulations. *fn10"

 Moreover, they maintain that they have not, by their conduct, waived their right to enforce the dependent deferral provision nor are they estopped by their conduct from denying coverage.

 * * *

 The PAA Plan provides benefits for hospital confinement under its hospital benefit provisions. Jason's inpatient treatment at the Home, however, is not covered under this portion of the Plan because more than three months lapsed from the time the insurance expired as a result of the termination of Robert Sentner's employment to the time Jason was admitted to the Home as an inpatient in January 1981.

 Coverage for Jason's inpatient care exists, if at all, under the major medical expense provisions in the Plan. Under the major medical portion of the Plan, coverage for an illness causing total disability is extended for the benefit year following that in which insurance is terminated if the insured is totally disabled from that illness and under the care of a physician at the time of the termination. No one disputes that Jason was totally disabled and under the care of a physician at the time Robert Sentner's insurance was terminated.

 Thus, Jason's inpatient treatment must be paid under the major medical expense provisions in the Plan unless the dependent deferral provision is valid and enforceable so as to bar coverage.

 * * *

 A.

 A court must generally apply the law in effect at the time it renders its decision unless doing so would result in manifest injustice or a statute or legislative history directs otherwise. Bradley v. School Bd. of the City of Richmond, 416 U.S. 696, 711, 40 L. Ed. 2d 476, 94 S. Ct. 2006 (1974); Teamsters Pension Trust Fund of Philadelphia and Vicinity v. John Tinney Delivery Service, Inc., 732 F.2d 319, 323 (3d Cir. 1984).

 A few months after the Commonwealth Court's decision, the Commissioner promulgated regulations which permit pre-existing condition exclusions in group insurance policies as long as the exclusions conform to the standards set forth therein. The regulations provide in relevant part:

 
§ 89.402. Approval.
 
(a) No preexisting condition limitation will be approved for use with a policy or contract which is more restrictive than the following definition: A preexisting condition is a disease or physical condition for which medical advice or treatment has been received within 90 days immediately prior to becoming covered under the group contract. Such condition shall be covered after the individual has been covered for more than 12 months under the group contract.
 
(b) Long-term disability benefit provisions may require that the total disability resulting from a preexisting condition commence after the individual has been covered for ...

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