426 F.3d 1281 (10th Cir. 2005), 04-5101, Zurich North America v. Matrix Service, Inc.

Docket Nº:04-5101, 05-5027.
Citation:426 F.3d 1281
Party Name:ZURICH NORTH AMERICA, Plaintiff-Appellant, v. MATRIX SERVICE, INC., Defendant-Appellee.
Case Date:October 18, 2005
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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426 F.3d 1281 (10th Cir. 2005)

ZURICH NORTH AMERICA, Plaintiff-Appellant,


MATRIX SERVICE, INC., Defendant-Appellee.

Nos. 04-5101, 05-5027.

United States Court of Appeals, Tenth Circuit.

Oct. 18, 2005

Appeal from the United States District Court for the Northern District of Oklahoma, D.C. No. 02-CV-896-E

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[Copyrighted Material Omitted]

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Submitted on the briefs.[*]

Theodore D. Aden and Sheila A. Woolson of Epstein Becker & Green, P.C., Newark, New Jersey, for Plaintiff - Appellant.

Timothy A. Heefner and James L. Gibbs, III of Goolsby Olson & Proctor, P.C., Oklahoma City, Oklahoma, for Defendant - Appellant.

Before EBEL, O'BRIEN and TYMKOVICH, Circuit Judges.

O'BRIEN, Circuit Judge.

The present dispute is a diversity action involving Zurich American Insurance Co.'s (Zurich) payment of medical expenses incurred by Enrique Ortiz, a Matrix Service, Inc. (Matrix) employee. Matrix contracted with Zurich to provide stop-loss coverage for medical expenses incurred by eligible Matrix employees for amounts that exceed Matrix's basic coverage. Matrix paid health benefits on behalf of its employee, Ortiz, up to its policy obligation of $205,000 and requested Zurich pay for the remaining medical bills. Zurich issued a check for $196,738.31 to cover the outstanding medical expenses but filed suit in the district court under 28 U.S.C. § 1332, claiming Ortiz was not a qualified employee for whom Zurich should pay medical expenses. The parties filed cross-motions for summary judgment. The district court, applying Oklahoma insurance law, ruled in favor of Matrix. Zurich appealed.2 We exercise jurisdiction under 28 U.S.C. § 1291, and AFFIRM.

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Matrix is a maintenance and construction company based in Tulsa, Oklahoma. It provides health care benefits to its employees through the Matrix Service Group Benefit Plan of June 1, 2001 (the Plan). Matrix hired Health Services, Inc. as a third party administrator to oversee its health insurance claims. Matrix contracted with Zurich, a New York Corporation, to issue a medical stop-loss insurance policy (the Policy) for the period of June 1, 2001, through May 31, 2002. Under the Policy, Zurich pays for covered medical expenses of eligible employees that exceed $150,000 up to $205,000 and then from $260,000 up to a maximum of $850,000.3 The Policy provides coverage to eligible employees who are defined as individuals who are "covered under the Plan of Benefits." (R. App. at 58.)

The Plan of Benefits is expressly defined as "the self-insured plan of health care benefits that the Employer provides for the benefit of its Employees." (Id.) Maxtrix's Plan describes the coverage and employee eligibility requirements for its employees who receive health benefits. The Plan terminates coverage if an employee "is laid-off/terminated at the end of an employer project" and not reassigned to another project within twenty-one days. (Id.at 320.) The Policy requires Matrix to obtain the written consent of Zurich for any changes to the Plan. However, the Plan grants sole discretion to a Health Benefit Committee to construe the terms of the Plan and determine whether an employee is eligible: "[u]ltimately, the Committee determines whether or not an employee is eligible to participate in the plan in these, and all other circumstances." (Id.at 210.)

Enrique Ortiz was employed by Matrix as a craftsman. On July 30, 2001, Ortiz was assigned to the Tesoro Anacortes Project. The project was scheduled to last past August 21, 2001. The project, however, was suspended on August 22, 2001, due to problems at the job site with Tesoro's sour water stripper purification system. Matrix was scheduled to return to the site on September 4, 2001, to continue the work. Ortiz was instructed to remain on standby and be ready to return to the job site on September 4. Prior to September 4, Tesoro notified Matrix that it had not corrected the problem and further postponed work on the project until September 24, 2001. Sometime during the week of September 17, 2001, Tesoro again postponed work on the project and told Matrix that it would have to determine on a week-by-week basis whether the project could resume. The project finally resumed on October 15, 2001, and was completed on January 13, 2002.

Prior to the resumption of work by Matrix, Ortiz was involved in an automobile accident in which he was seriously injured. The accident occurred on October 11, 2001, approximately 50 days after work on the Tesoro project was initially suspended. Ortiz's medical bills totaled $401,738.31.4

The Health Benefit Committee determined that Ortiz was covered under the Plan and eligible to receive benefits. The Committee reasoned that because the Tesoro project had only been suspended, not finished, the twenty-one day layoff/termination

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provision did not apply. Because Ortiz had been eligible for benefits prior to the suspension of the Tesoro project and because the project was not finished before he suffered the accident, the Committee determined Ortiz was a covered employee and Matrix must pay Ortiz's medical bills under the Plan and the Policy. It sought payment from Zurich for the remaining medical bills in the amount of $196,738.31.

As allowed by the Policy, Zurich requested documentation from Matrix that it had paid the appropriate premiums for Ortiz and that he was a covered eligible employee. Zurich's underwriter, PERU, notified Zurich of the need to pay the claim promptly in order to take advantage of a medical discount, which it did on May 20, 2002, by issuing a check to Matrix for $196,738.31, while continuing to press for supporting documentation. After some delay, Matrix sent a memo which addressed the request for information regarding premium payments as follows:

Evidence of premium payments: For field employees like Ortiz, under circumstances where the employee's need for medical or FMLA leave is unplanned or unexpected, it is Matrix policy and customary practice to pay the contribution to the Group Benefit Plan for the employee until arrangements can be made for contribution payment. Employees are required to re-pay the company for advances of contribution upon return to work.

(R. App. at 84.)5 During this time, Zurich realized that Ortiz had been suspended from work for approximately fifty days and requested a refund from Matrix. Matrix refused, stating it had correctly interpreted the Plan and offered to "provide [Zurich] documentation concerning Mr. Ortiz' and other employees' continued employment during the time period relevant to this matter." (R. App. at 419-20.) The last document concerning premium payments generated prior to the filing of this lawsuit is a telephone message memo indicating Matrix's claims broker had telephoned regarding Zurich's continued requests for the premium billing statements. The memo concluded, "[the broker] thinks Zurich must be checking eligibility. She will check with the Group [Benefit Committee]." (R. App. at 86.)

On November 25, 2002, Zurich filed a complaint alleging breach of contract and seeking the return of the $196,738.31. Zurich alleged Matrix's interpretation of the contract constituted an impermissible change in the terms for which adequate notice was not received. Zurich did not allege Matrix had failed to make premium payments. Zurich filed a Motion for Summary Judgment on May 19, 2003.6 On August 18, 2003, Matrix filed a response and its Cross-Motion for Summary Judgment. The district court denied Zurich's Motion for Summary Judgment and granted Matrix's Cross-Motion for Summary Judgment on June 22, 2004. Judgment was entered on June 23, 2004. Zurich never raised Matrix's failure to provide evidence of premium payments during the pleading, discovery or summary judgment processes.

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It appears around the time of the district court's summary judgment decision, Zurich renewed its request for documentation of premium payments from Matrix, specifically an "active [Plan] participant census" as of November 1, 2001, through June, 2002. (R. App. at 87-95.) After receiving that list, on June 29, 2004, Zurich again asked for the premium billing statements for October 1, 2001 through May 31, 2002. One week later, Zurich's underwriter wrote to check on the status of the request and related that Zurich was "asking specifically for the August, September and October 2001 itemized statements." (R. App. at 97.) Those exchanges were not made through counsel in this case. But on the same day, Zurich's counsel sent a written request to Matrix's counsel for the same documentation, to be provided by July 9, 2004. Matrix's counsel responded the following day stating the timing of the request was unreasonable, but that Matrix "will evaluate your request and respond appropriately, within a reasonable time." (R. App. at 99.) On July 9, 2004, Zurich's counsel again requested the premiums documentation be provided either by fax or production at Matrix's offices no later than July 13, 2004. Zurich advised that if the documents were not received, it would file a motion for an order to show cause asserting that Matrix had misrepresented Ortiz's status as a covered employee because the premiums were not paid for him during those months. On July 12, 2004, Matrix refused to produce the documents, stating that it considered the case resolved pursuant to the summary judgment ruling.

On July 20, 2004, nearly a month after the district court's decision was announced, Zurich filed an Order to Show Cause to Compel Matrix to produce relevant premium documents from October 1, 2001, through May 31, 2002. Zurich also sought relief pursuant to Rule 60(b)(2), (3) and (6) (relief from judgement or order), claiming Matrix's refusal to produce the relevant documentation, as...

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