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UPMC McKEESPORT v. WESTERN & SOUTHERN LIFE ASSURANCE CO.

November 10, 2005.

UPMC McKEESPORT, a Pennsylvania corporation, and UPMC PRESBY SHADYSIDE, a Pennsylvania corporation, Plaintiffs,
v.
WESTERN & SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation, WESTERN & SOUTHERN LIFE INSURANCE COMPANY, an Ohio corporation, and WESTERN & SOUTHERN FINANCIAL GROUP, INC., an Ohio corporation, Defendants.



The opinion of the court was delivered by: WILLIAM STANDISH, Senior District Judge

MEMORANDUM

I

In this civil action, plaintiffs, UPMC McKeesport and UPMC Presby Shadyside, assert claims against defendants, Western & Southern Life Assurance Company, Western & Southern Life Insurance Company and Western & Southern Financial Group, Inc., for breach of contract and bad faith under 42 Pa.C.S.A. § 8371, arising out of "a dispute over an employee benefits plan created pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(e)(1)."*fn1 Presently before the Court is defendants' motion to dismiss plaintiffs' complaint pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion will be granted.

  II

  In summary, plaintiffs' complaint alleges the following facts:

  UPMC McKeesport and UPMC Presby Shadyside are Pennsylvania corporations operating as hospitals in McKeesport, Pennsylvania and Pittsburgh, Pennsylvania, respectively. Defendants are Ohio corporations which regularly provide health insurance coverage and conduct other insurance-related business in the Commonwealth of Pennsylvania. At all relevant times, defendants provided health insurance coverage to Regis Farrah, an adult individual who resides in Dravosburg, Pennsylvania, under a plan governed by ERISA.*fn2 (Complaint, ¶¶ 2-6, 8).

  Mr. Farrah received medical treatment at UPMC McKeesport on May 15 and May 16, 2004. Mr. Farrah was then transferred to UPMC Presby Shadyside, where he received medical treatment from May 16 through June 11, 2004. On May 20, 2004, UPMC McKeesport submitted a claim to defendants in the amount of $11,480.00 for the medical treatment provided to Mr. Farrah on May 15 and May 16, 2004, and, between May 22 and June 14, 2004, UPMC Presby Shadyside submitted three claims to defendants in total amount of $505,581.75 for the medical treatment provided to Mr. Farrah between May 16 and June 11, 2004. (Complaint, ¶¶ 9-11, 13).

  Subsequently, defendants engaged in a pattern and practice of systematically sending correspondence to plaintiffs and Mr. Farrah in an obvious attempt to avoid payment of the claims submitted by plaintiffs for the medical treatment provided to Mr. Farrah. As a result of defendants' conduct, plaintiffs were compelled to retain counsel to assist in recovering payment for the medical treatment provided to Mr. Farrah. Defendants did not begin to process any payments to plaintiffs until they became aware that plaintiffs had retained counsel. (Complaint, ¶¶ 16-17).

  On September 24, 2004, UPMC McKeesport received a payment from defendants in the amount of $4,926.97, which (a) breached the Preferred Provider Organization pricing agreement to which plaintiffs and defendants are parties by improperly discounting UPMC McKeesport's claim by 20% or $2,296.00, and (b) breached the ERISA plan in which Mr. Farrah was a participant by denying payment for medical treatment provided to Mr. Farrah in the amount of $4,197.03. Thus, a balance of $6,493.03 remains due and owing to UPMC McKeesport for medical treatment provided to Mr. Farrah on May 15 and May 16, 2004. (Complaint, ¶¶ 18-19, 26).

  Mr. Farrah executed an assignment of rights in favor of plaintiffs, which granted standing to plaintiffs to pursue any and all claims that Mr. Farrah may have against defendants, including claims for breach of contract and bad faith under Pennsylvania law.*fn3 However, defendants advised Mr. Farrah that the ERISA plan would not honor the assignment of rights to plaintiffs and that any payments issued with respect to plaintiffs' claims arising out of medical treatment provided to Mr. Farrah would be paid directly to Mr. Farrah.*fn4 (Complaint, ¶¶ 20-21).

  On October 20, 2004, defendants issued two checks in the total amount of $107,874.00 in connection with the claims of UPMC Presby Shadyside for medical treatment provided to Mr. Farrah between May 16 and June 11, 2004. In blatant disregard of Mr. Farrah's assignment of his rights under the ERISA plan to plaintiffs, defendants mailed the two checks directly to Mr. Farrah. A balance of $397,707.75 remains due and owing to UPMC Presby Shadyside for medical treatment provided to Mr. Farrah. (Complaint, ¶¶ 22, 24).

  Between December 4 and December 7, 2004, Mr. Farrah received further medical treatment at UPMC McKeesport. On December 14, 2004, UPMC McKeesport submitted a claim to defendants in the amount of $21,990.00 for this treatment; however, to date, UPMC McKeesport has not received payment. (Complaint, ¶¶ 27-29).

  Defendants owe fiduciary, contractual and statutory duties toward their insureds to act in accordance with the terms of the ERISA plan and negotiate claims in good faith to arrive at a prompt and fair settlement or resolution. At all relevant times, plaintiffs and Mr. Farrah fully complied with the terms of the ERISA plan, as well as all conditions precedent to their right to recover under the ERISA plan. At all relevant times, plaintiffs fully complied with the terms and conditions of the Preferred Provider Organization pricing agreement and all conditions precedent to their right to recover under the agreement. Plaintiffs are unable to pursue the administrative remedies provided by ERISA because (a) defendants have refused to recognize plaintiffs as assignees of Mr. Farrah's rights under the ERISA plan, and (b) defendants have refused to provide the documentation necessary to appeal defendants' decisions with respect to the claims submitted for medical treatment provided by plaintiffs to Mr. Farrah. (Complaint, ¶¶ 31-34).

  In Counts I through VI, each plaintiff asserts a separate breach of contract claim against each defendant, and, in Counts VII through XII, each plaintiff asserts a separate claim of ...


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