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New Life Homecare, Inc., et al v. Blue Cross of Northeastern Pennsylvania

May 3, 2012

NEW LIFE HOMECARE, INC., ET AL., PLAINTIFFS,
v.
BLUE CROSS OF NORTHEASTERN PENNSYLVANIA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Caputo

MEMORANDUM

Presently before the Court is the Motion for Summary Judgment (Doc. 97) filed by Defendants Blue Cross of Northeastern Pennsylvania ("Blue Cross") and First Priority Health (collectively "Defendants").*fn1 Plaintiff New Life Homecare, Inc. ("New Life") claims that Defendants breached the terms of a group insurance contract when they terminated coverage to New Life's employees effective January 1, 2007. Thirteen New Life employees (the "Individual Plaintiffs")*fn2 claim that the termination of coverage violated multiple provisions of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001, et seq. Because Defendants terminated New Life's insurance coverage in compliance with the terms of the parties' agreement, Defendants will be granted summary judgment on New Life's breach of contract claim. And, because Individual Plaintiffs fail to provide reliable, non-speculative summary judgment evidence to contradict Defendants' claim that New Life's insurance plan (the "Plan") was terminated due to a violation of the agreement's terms, Defendants are entitled to summary judgment on Individual Plaintiffs' ERISA breach of fiduciary duty claim, ERISA retaliation and discrimination claim, and ERISA enforcement and clarification of rights claims.

I. Background

This is a dispute over the provisions and termination of a contract for group insurance between Blue Cross/Highmark Blue Shield ("Highmark") and Plaintiffs. From January 1, 2006 through December 31, 2006, Blue Cross and Highmark provided health insurance to certain employees of New Life pursuant to a group insurance contract ("the 2006 Policy"). The 2006 Policy could be terminated by the Contract Holder, New Life, "after one year, or at renewal date any year thereafter, by giving written notice to [Blue Cross and/or Highmark] of at least sixty (60) days in advance." The Plan could also be terminated at the option of Blue Cross and/or Highmark for a variety of reasons, including "if the Contract Holder breaches the terms of the Underwriting Requirements." Termination of the Plan by Defendants included the following limitation: "the Plan agrees to notify the Contract Holder of its failure to perform a material obligation . . . and to give the Contract Holder ten (10) days advance written notice prior to termination of the Contract."

The Underwriting Requirements for the 2006 Policy provided that "for groups of 2-50 eligible employees, a minimum of 75% of the eligible participants must be enrolled in the group benefit program," and "no more than 15% of eligible employees may reside more than 20 miles outside of the Blue Cross of Northeastern Pennsylvania/Highmark Blue Shield and/or First Priority Health licensed service area." In addition, the 2006 Underwriting Requirements provided that "whenever any group acquires or loses a significant number of enrolled employees ( 15%), the group's coverage may be subject to review, including the possibility of a special renewal at Blue Cross of Northeastern Pennsylvania's/Highmark Blue Shield's and/or First Priority Health's discretion."

As of September 10, 2006, New Life had thirteen (13) employees eligible for the Plan, and nine (9) employees were enrolled under the terms of the 2006 Policy. And, two (2) of the eligible employees "resided out-of-state." Thus, less than 85% of New Life's eligible employees resided in the permitted service area as of September 10, 2006.

On or about September 10, 2006, New Life employee Roger Deaton, a non-Pennsylvania resident, applied to enroll in the Plan. Mr. Deaton's application for enrollment was approved. As a result, three (3) out of fourteen (14), or 21%, of New Life's eligible employees lived outside the permitted service area.

On October 25, 2006, Defendants sent New Life a letter informing New Life that its rates had been renewed for the upcoming year. The letter enclosed a copy of these rates and provided that "this Group Agreement is comprised of Part I-IV in their entirety and each Part is incorporated herein by reference as if fully set forth at length . . . . "

The Policy governing New Life's group health insurance Plan for 2007 was largely similar to the terms of the 2006 Policy. However, the 2007 Underwriting Requirements varied slightly from the 2006 Requirements and provided that "no more than 15% of enrolled eligible employees may reside more than 20 miles outside of the Blue Cross of Northeastern Pennsylvania/Highmark Blue Shield, First Priority Health, and/or First Priority Life licensed service area."

Despite the October 25, 2006 correspondence, Defendants, less than a month later, sent New Life a letter of termination effective January 1, 2007. According to the November 21, 2006 letter, the Plan was being terminated because "the contract requires that there are no more than 15% of the eligible employees residing more than 20 miles outside of the Plan's licensed service area. Our records indicate your company currently does not meet that requirement."

In response to Defendants' November 21, 2006 termination letter, New Life offered to take remedial measures to alleviate Defendants' concerns. Specifically, after indicating that "other organizations use the same plan and [are] not being restricted on the number of insured out of state employees," New Life offered to "remove an out of state employee" in order to ensure that the Plan was not terminated. Despite New Life's offer to terminate Mr. Deaton's coverage, Defendants refused the proposal because "New Life Home Care will not obtain eligibility and/or participation compliance in accordance with the terms of your contract, even with consideration of the action being taken with Mr. Roger Deaton's coverage." Defendants reasoned that even without Mr. Deaton's participation in the Plan, New Life would have eight (8) enrolled participants with two (2) living outside the permitted service area. Thus, as of December 5, 2006, 25% of New Life's enrolled participants resided outside of the permitted service area.

On December 7, 2006, New Life President/CEO Gregory M.J. Malia sent a letter to Blue Cross seeking guidance as to how New Life could retain its group coverage. In his letter, Mr. Malia faulted Blue Cross's reasoning for terminating coverage as New Life's "ratios of out of area employees meets your guidelines according to all eligible employees in the New Life group as per the Blue Cross contract. Your letter of December 5, 2006 inaccurately refers to our ratio of out of area employees based upon enrolled rather than eligible employees according to the Blue Care PPO contract."*fn3

As the parties were unable to resolve the coverage dispute, Plaintiffs commenced this action on December 29, 2006. The same day, New Life requested a Temporary Restraining Order to prevent Defendants from terminating New Life's insurance coverage. The Court granted Plaintiffs' request and temporarily enjoined Defendants from terminating New Life's insurance coverage. On March 12, 2007, the day before the Court was to hear argument on Plaintiffs' motion for a preliminary injunction, Defendants Blue Cross and First Priority Health and Plaintiffs New Life and Mr. Malia entered into a Partial Settlement Agreement and Release. The parties entered into the Partial Settlement Agreement, in part, for the purpose of "resolving the issues surrounding the Temporary Restraining Order and the Motion for a Preliminary Injunction and the Parties have agreed to resolve those issues and terminate the Motion for a Preliminary Injunction pursuant to the terms of this Agreement." The Partial Settlement Agreement provided, among other things, that: (1) Blue Cross and First Priority Health would provide health insurance coverage to New Life's employees until March 31, 2007; (2) Blue Cross would provide individual conversion health insurance policies to New Life's employees effective April 1, 2007; (3) Plaintiffs would immediately withdraw with prejudice their motion for preliminary injunctive relief; (4) Plaintiffs would immediately take all necessary steps to have the December 26, 2009 Temporary Restraining Order vacated; (5) Blue Cross or First Priority Health did not admit liability by entering into the agreement; and (6) "nothing in this Settlement Agreement shall constitute precedent or evidence in any other proceeding, with the exception that this Settlement Agreement shall be admissible in any proceeding to enforce its terms." Furthermore, the Partial Settlement Agreement constituted the entire agreement of the parties and "supercede[d] any and all prior agreements or understandings between the parties hereto pertaining to the subject matter of this Agreement." Absent from the terms of the Partial Settlement Agreement, however, was a release or settlement of Plaintiffs' substantive claims underlying this litigation.

After the Court dismissed a number of Plaintiffs' claims on Defendants' motion to dismiss, Plaintiffs proceeded on the following causes of action: (1) New Life's breach of contract claim; (2) Individual Plaintiffs' Enforcement of Plan Terms claim; (3) Individual Plaintiffs' Clarification of Rights claim; (4) Individual Plaintiffs' Breach of Fiduciary Duty claim; and (5) Individual Plaintiffs' ERISA Discrimination/Retaliation claim. Blue Cross and First Priority Health now move for summary judgment on all of Plaintiffs' remaining claims. Defendants' motion has been fully briefed and is now ripe for disposition.

II. Discussion

A. Legal Standard

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c) (2). A fact is material if proof of its existence or nonexistence might affect the outcome of the suit under the applicable ...


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