:: Bad Faith And Punitive Damages Claims Against Health Plan’s Stop Loss Carrier Are Questions For Jury

This case involves interpretation of provisions of a stop-loss insurance policy issued by Defendant Sun Life Assurance Company of Canada  (“Sun Life”) regarding the scope of its contractual obligation to reimburse Plaintiff Bay Area Roofers Health and Welfare Trust (“the Trust”) for claims paid on behalf of a worker’s minor children for medical care.

Sun Life asserts that coverage is precluded because the worker obtained his employment by fraud through submission of a false Social Security Number  (“SSN”). The Trust asserts that it determined that the worker was an eligible employee under the Health and Welfare Plan and thus, as required by the Policy, Sun Life is contractually obligated to reimburse it for its claims. Cross-motions for summary judgment are presently before the Court.

Bay Area Roofers Health & v. Sun Life Assur. Co., 2014 U.S. Dist. LEXIS 158048 (N.D. Cal. Nov. 6, 2014)

What effect should an employee’s use of an invalid social security number have on an employer’s claim for stop loss reimbursement? In this case, the carrier thought this should invalidate coverage.   The court disagreed.

If the carrier’s defense held, it could have had important and far-reaching consequences for employers.

Nevertheless, despite several complicated claims and defenses raised by the parties, the case essentially presents s state law contract question.   The case remained in federal court and, despite the  obfuscating arguments , ended up decided based upon state law.

The implications of the defense, however, remain an interesting topic and suggest several points that should be included in a due diligence review of stop loss contractual compliance.  Those points will be noted after a brief synopsis of the case as it was presented to the district court.

Continue reading

:: Joint Venture Liability For Medical Stop Loss Claims

Majestic has included RMTS as a defendant in Count I (declaratory relief), Count II (breach of contract), and Count IV (bad faith). RMTS argues that it should be “dismissed” from this action because it was not a party to the stop loss contracts.   Majestic counters that RMTS is a proper defendant because it is a party to the contract, or alternatively, because it was engaged in a joint venture with Trustmark.

Majestic Star Casino, LLC v. Trustmark Ins. Co., 2009 U.S. Dist. LEXIS 93911 (N.D. Ill. Oct. 8, 2009)

Joint venture is likely not the first legal theory that comes to mind when considering the liability of managing general underwriters for stop loss claims by plan sponsors.  The theory has been advanced in ERISA cases from time to time as a means to expand the defendant group.

Common endeavor and sharing of risks are required to sustain the claim.  See, e.g., Transit Mgmt. v. Group Ins. Admin., 1998 U.S. Dist. LEXIS 15784 (E.D. La. Sept. 30, 1998).  In this recent opinion, the theory survives a summary judgment motion given the factual issues implicated by the claim.

Continue reading

:: Missed COBRA Qualifying Events Cause Forfeiture Of Stop Loss Coverage

In Fenner, this court held that if the same medical coverage continues automatically after termination, no qualifying event occurs. 25 F. Supp. 2d at 873 (citing Mansfield v. Chicago Park Dist. Group Plan, 997 F. Supp. 1053 (N.D. Ill. 1998). But, if the health plan requires the employee to take any action to continue her coverage, and absent this action the employee’s coverage would lapse, then the qualifying event is termination of the employment and the employer must give the employee a COBRA notice. Id. at 874 (citing Mansfield, 997 F. Supp at 1053).

Majestic Star Casino, LLC v. Trustmark Ins. Co., 2009 U.S. Dist. LEXIS 93911 (N.D. Ill. Oct. 8, 2009)

The district court’s opinion in Majestic v. Trustmark addresses numerous aspects of a controvery between an employer on the one hand and its stop loss carrier and MGU on the other.  

Though not dispositive of the case, the opinion does cover a broad swath of issues than can arise in the stop loss reimbursement setting, some of which I hope to discuss further in additional posts.   In this post, I will note the facts that cost the employer stop loss coverage on several claims based upon discontinuities in the plan language and that in the stop loss policy. 

Continue reading

:: Are Stop Loss Carriers Subject To Prompt Pay Statutes?

The inquirer is a third-party administrator (TPA) in New York for several self-funded benefit plans, and also is licensed as an insurance agent in New York. At least one such plan2 has purchased a stop-loss policy from an insurer which is licensed in New York to write, among other kinds of insurance, accident and health insurance. The policy is administered by a Third Party Administrator (TPA).

It is asserted that the inquiring firm’s client has been owed an amount of almost $480,000 by the insurer since June 1, 2008, with respect to a dependent under the plan. The insurer contends, in defending litigation commenced by the plan, that questions of fact support its refusal to pay the stop-loss claim.

When the inquirer notified the insurer, through the TPA, of its belief that the insurer is obligated to pay claims promptly under Insurance Law § 3224-a, the TPA indicated its disagreement . . .

The inquirer asks whether the TPA’s interpretation of Insurance Law § 3224-a is correct.

State Of New York Insurance Department, OGC Op. No. 09-04-08

Stop loss insurance is frequently the subject of inquiry that borders on the metaphysical. Is it a form of accident and health insurance? Property and casualty insurance? Is it “reinsurance”?

This recent legal opinion from the New York Insurance Department is interesting. It required classification of stop loss insurance in the first instance. The ultimate question was whether stop loss carriers are subject to New York’s prompt pay laws.

The inquiry asks whether stop-loss insurers are subject to the prompt-pay rules of Insurance Law § 3224-a. In April 1982, the Insurance Department issued Circular Letter 7, which provides that stop-loss insurance is not reinsurance, but rather a form of accident and health insurance that may not be placed by excess line brokers. In 1999, the Legislature confirmed that stop-loss insurance is a form of accident and health insurance by enacting Insurance Law § 4237-a.

So what is stop loss insurance?

A stop-loss insurance policy is a contract or agreement issued or entered into pursuant to Article 42 of the Insurance Law. However, in enacting Insurance Law § 3224-a, there is no indication that the Legislature intended for the statute to apply to stop-loss policies. Rather, by its terms, Insurance Law § 3224-aapplies only to policies directly providing coverage for “health care” services.

Because stop-loss insurance claims are similar to disability insurance claims, which are claims under an accident and health insurance policy but not “health care claims” under Insurance Law § 3224-a (since they do not involve payment for health care treatment), a claim under a stop-loss insurance policy is not a “health care claim” for the purposes of Insurance Law § 3224-a.

The opinion does note that state law does provide protection against carrier abuses, however, stating that:

An insured benefit plan that falls outside the scope of Insurance Law § 3224-a is not, however, without protection. Insurance Law § 3216(d)(1)(H), which regulates individual accident and health insurance policies, requires that payments be made immediately upon receipt of proof of loss. Further, Insurance Law § 3221(a)(12), which regulates group accident and health policies, requires payment within 60 days. Because stop-loss insurance protects a self-funded group plan, but is provided by an individual policy issued to the plan, the Department interprets the Insurance Law to allow either time period for payment of claims.

In addition, § 216.6 of 11 NYCRR Part 216 (Regulation 64) sets forth the standards for the prompt, fair, and equitable settlement of accident and health insurance claims.

Note: Stop loss insurance is not reinsurance although some MGU’s in the past have attempted to confuse the distinction. So I agree with the opinion (and the cited Circular) on that point.

But then the opinion states:

Because stop-loss insurance protects a self-funded group plan, but is provided by an individual policy issued to the plan, . . .

That is incorrect. In many instances stop loss policies are issue to the plan sponsors. Stop loss policies cannot be categorically defined as policies protecting the benefit plan.

And then this:

In April 1982, the Insurance Department issued Circular Letter 7, which provides that stop-loss insurance is . . . a form of accident and health insurance . . .

Whether issued to employers or benefit plans, it seems that stop loss insurance is better viewed as a form of casualty insurance. So I would disagree with the foregoing characterization.

More importantly, however, the opinion affirms that stop loss insurance is subject to state insurance law regulation (consistent with FMC v. Holliday) and suggests the state regulatory provisions that apply to stop loss insurance.

Also, it is important to note that the opinion did not say that stop loss carriers could not be subject to prompt pay laws. The question was one of statutory interpretation, not ERISA preemption. Should a state decide to include stop loss insurance by definition, then stop loss claims would be required to meed the state regulation of prompt reimbursement.

The opinion is available for review here.

:: Hartford Backs Out Of Stop Loss, Sells To UnitedHealth Group Subsidiary

The Hartford Financial Services Group Inc. says it has agreed to sell its medical stop-loss insurance business to National Benefit Resources Inc.  NBR is a subsidiary of UnitedHealth Group Inc., Minnetonka, Minn.

National Underwriter, Hartford To Sell Stop-Loss Health Business (Mar. 7, 2007)

Hartford has been in the stop-loss business since 1974, according to the article, and has about $200 million of stop-loss premium with over 800 self-funded employer plans.  The transaction is expected to close in April.

:: The Critical Flaw In Stop Loss Carrier Reimbursement Claims

Frequently stop loss carriers will engage recovery agents to pursue their interests in group health plan subrogation or reimbursement matters. In many cases, these recovery efforts cause confusion.

Stop loss carriers issue policies to employers who serve as plan sponsors of ERISA plans. Of course, in some cases the employer is an entity exempt from ERISA, such as a governmental entity. For purposes of this article, however, and the majority of cases, let’s assume that the plan is a bona fide, self-funded ERISA plan.

What is the role of the stop loss carrier in such situations? Continue reading

:: Fifth Circuit Rejects Carrier’s ERISA Preemption Defense to State Law Claims

“As we have noted, ERISA may preempt some claims between traditional ERISA entities but not others . . . And a party may qualify as an ERISA fiduciary with regard to some claims but not others. See Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000) (ERISA defines party as fiduciary “only ‘to the extent’ that he acts in such a capacity in relation to a plan”) (quoting 29 U.S.C. § 1002(21)(A)). “[T]he critical determination [is] whether the claim itself created a relationship between the plaintiff and defendant that is so intertwined with an ERISA plan that it cannot be separated.”

Bank Of Louisiana v. Aetna US Healthcare Inc., 2006 WL 2959792 (October 18, 2006)

The adequacy of stop loss coverage and the timeliness of submission of claims to the stop loss carrier are frequent areas of dispute between employers and claims administrators. The probability of controversy increases substantially when the claims administrator is an insurance company issuing the stop loss policy.

In Bank Of Louisiana v. Aetna US Healthcare Inc., 2006 WL 2959792 (October 18, 2006), the Fifth Circuit Court of Appeals set forth important precedent for evaluating claims arising out of this setting. The case arrived at the Fifth Circuit in the posture of an appeal by The Bank of Louisiana (“the Bank”) of a summary judgment for the defendants Aetna U.S. Healthcare Inc. and Aetna Life Insurance Company (collectively “Aetna”). The issue on appeal was whether the Bank’s state law claims of detrimental reliance, breach of contract, and misrepresentation were preempted by the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (“ERISA”). Continue reading

:: TPA Averts Fiduciary Status In Defending Failure to Submit Stop Loss Claims Litigation

In Trustees of Colorado Laborers Health and Welfare Trust Fund v. American Ben. Plan Adm’rs, Inc. 2006 WL 2632308 (D.Colo.) (September 13, 2006), the plan trustees and the Fund alleged that the defendant third party administrator (“TPA”) failed to give timely notice to the Fund’s first stop-loss carrier of a claim and subsequently failed to properly disclose a claim to a second stop loss carrier. In both instances, the carriers denied claims related to these omissions.

The TPA moved for partial summary judgment, asserting that the Fund lacked standing to sue under ERISA and that the TPA was not a fiduciary as defined by ERISA. The Court resolved the dispute in terms of an analysis of the TPA’s alleged fiduciary status. Continue reading

:: Stop Loss Carrier’s Refusal To Pay Insufficient Reason To Deny Claims

“Defendants have pointed to no provision of the Plan that permits them to deny a claim for benefits solely on the ground that their reinsurance carrier denied their claim for reinsurance. The Court has discerned no such provision after reviewing the Plan. Indeed, [the plan’s representative] admitted that the Plan did not contain such a provision, but that it simply was the Plan’s policy not to pay until the reinsurer had paid.”

Harris Methodist Fort Worth v. Sales Support Services, Inc. Employee Health Care Plan, 2006 WL 2577826 (N.D.Tex.) (Sept. 7, 2006), illustrates the confusion that often attends the self-funded plan sponsor’s relationship to its stop loss carrier. In this case, a plan participant delivered twins prematurely and the ensuing medical bills reached a sum exceeding $600,000. The plan sponsor had stop loss insurance with a $15,000 specific retention limit. That’s where things became interesting. Continue reading