Hayes v. Prudential Ins. Co. of America

• Decision Date: 23 June 1987
• Docket Number: 85-5528,Nos. 85-5527,s. 85-5527
• Citation: 819 F.2d 921
• Parties: Kip HAYES, Plaintiff-Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, National League of Postmasters of the United States, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 921

819 F.2d 921

Kip HAYES, Plaintiff-Appellant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, National League of Postmasters of the United States, et al Defendants-Appellees.

Nos. 85-5527, 85-5528.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 4, 1985.

Decided June 15, 1987.

As Corrected June 23, 1987.

Harvey R. Levine, Rick L. Bove, and Janet Lewis, San Diego, Cal., for plaintiff-appellant.

Edward R. Cohen, John T. Kotelly, Ira Mitzner and Elaine Metlin, Washington, D.C., James S. Cline, Angel Gomez, III, Los Angeles, Cal., R.J. Coughlin, Jr., San Diego, Cal., for defendants-appellees.

Phillip S. Neal, Washington, D.C.; James R. Barnett, Washington, D.C., for amicus curiae.

Appeal from the United States District Court for the Southern District of California.

Before BROWNING, WIGGINS and BRUNETTI, Circuit Judges.

BRUNETTI, Circuit Judge:

This is an appeal from summary judgments granted in two consolidated cases, Kip Hayes v. Prudential Insurance Co., No. 85-5527 (D.C. No. 84-1245), and National League of Postmasters of the United States v. United States Office of Personnel Management and Nobel Hayes, No. 85-5528 (D.C. No. 84-0341). We are asked to review the district court's rulings that federal employee health benefits lawfully may be reduced from year to year, and that the Federal Employee Health Benefits Act preempts state law tort and contract actions.

Though we are moved by the compelling circumstances surrounding Kip Hayes and his family, we find that the statute and health benefits plan we are called upon to construe require an unmistakable result. Until Congress acts to ensure continued coverage for federal enrollees who require long-term care, this court will be powerless to provide appellant with the remedy he seeks.

We affirm the district court.

I. THE FEDERAL EMPLOYEE HEALTH BENEFITS ACT

The Federal Employee Health Benefits Act (FEHBA) established a comprehensive program to provide federal employees and retirees with subsidized health care benefits. 5 U.S.C. Secs. 8901-8913 (1982 & Supp.1987). Under the Act, the United States does not act as an insurer, but, through the Office of Personnel Management (OPM), contracts with various private carriers to develop health care plans with varying coverages and costs. The plans are for a term of one year, and are renegotiated annually.

After OPM negotiates changes with the carriers all federal enrollees are permitted to switch enrollment from one plan to another, regardless of their state of health, during a period called "open season." Each enrollee thus may obtain the most beneficial plan but is not guaranteed the same coverage in future years that had been available the preceding year.

The National League of Postmasters (NLP or Postmasters) is a nonprofit corporation For several years, Prudential Insurance Company of America (Prudential) has entered into agreements with Postmasters whereby Prudential issues an annual policy to Postmasters which incorporates the terms and conditions of the Brochure as negotiated by Postmasters and OPM for the year. Pursuant to the policy, Prudential administers certain claims presented to Postmasters for payment and, in effect, guarantees that Postmasters can pay the benefits due enrollees under the Plan.

and a carrier under FEHBA. Each year, OPM and Postmasters negotiate a contract that determines the benefits Postmasters will provide that year to enrollees in the Postmasters Health Benefits Plan (Plan). The contract between OPM and Postmasters sets forth the precise terms of coverage under the Plan. OPM then issues a Postmasters Benefit Brochure (Brochure) which provides a complete description of the benefits available to enrollees that year.

II. FACTS AND PROCEEDINGS

Appellant Kip Hayes is the son of Nobel Hayes, a retired federal employee. Appellant was injured in a high school football game in November 1976, and was rendered a respirator-dependent quadriplegic requiring 24-hour private duty nursing care. At the time of his injury, appellant was covered as a family member under a FEHBA plan in which his father was enrolled. This plan, administered by Aetna Life Insurance Company, placed no monetary limit on the benefits for private duty nursing care. When the Aetna plan later was modified to eliminate private duty nursing care benefits, Nobel Hayes enrolled during open season in another FEHBA plan that did provide unlimited benefits for private duty nursing care. By 1982, Nobel Hayes again had switched coverage, and enrolled in the plan offered by Postmasters, which at the time had no limits on benefits for private duty nursing care.

In October 1982, following negotiations between OPM and Postmasters, the 1983 Postmasters Plan was formulated to place a $10,000 limit on benefits for private duty nursing care. By subsequent agreement between OPM and Postmasters, the 1983 Plan was amended to remove the $10,000 limit.

The Postmasters Plans for 1984 and 1985 again contained a $10,000 limit on benefits for private duty nursing care. The 1984 and 1985 Plans were not amended and, through the date of the summary judgments in both cases, contained the $10,000 limitation.

In February 1984, Postmasters filed in district court a declaratory relief action naming OPM and Nobel Hayes as defendants. NLP v. OPM, D.C. No. CV-84-0341-LCN. Postmasters sought a declaration that private duty nursing care benefits provided under its 1982 Plan could be reduced in subsequent policy contract years and that under its 1984 Plan Postmasters was not obligated to provide Kip Hayes with private nursing benefits in excess of $10,000.

In April 1984, appellant brought an action against Prudential and Postmasters in the Superior Court for the State of California. The action was removed to federal district court. Hayes v. Prudential, D.C. No. CV-84-1245-LCN. Appellant alleged that his enrollment in the 1982 Plan gave him a vested contractual right to receive, indefinitely, unlimited private duty nursing care benefits, and that Postmasters and Prudential had breached the contract by refusing to provide unlimited benefits in 1984. Based on this theory of his rights under the Plan, appellant sought damages alleging various state law causes of action including breach of a duty of good faith and fair dealing, and breach of Cal.Ins.Code Sec. 790.03 (West 1982).

The district court granted summary judgment in favor of Postmasters in NLP v. OPM on the ground that benefits for private duty nursing care lawfully had been reduced to $10,000 in the 1984 Postmasters Plan and that Postmasters accordingly was not required to pay claims in excess of that amount.

In Hayes v. Prudential, the court granted summary judgment in favor of defendants on the grounds that the benefits lawfully had been reduced, and that the state

law claims were preempted under FEHBA, 5 U.S.C. Sec. 8902(m)(1).

III. DISCUSSION

1. Effective Appeal.

Postmasters and OPM contend that there has been no effective appeal from NLP v. OPM. The basis for this contention is that neither OPM nor Nobel Hayes, the named defendants, have appealed, and the appeal by Kip Hayes is not effective because he was not a party to the action.

A motions panel of this court, however, has determined that Kip Hayes' appeal in NLP v. OPM was effective. In his Memorandum of Points and Authorities in Opposition to Motion for Summary Judgment in the NLP v. OPM action, appellant requested that the district court join him as a defendant pursuant to Fed.R.Civ.P. 19. The district court treated appellant's request as a motion for consolidation with Hayes v. Prudential, and consolidated the cases. Consolidation by the district court led the motions panel to conclude that Kip Hayes effectively appealed from the summary judgment in NLP v. OPM.

2. Standard of Review.

We review de novo the district court's decision regarding the $10,000 limit on benefits and the preemption of state law claims. See Darring v. Kincheloe, 783 F.2d 874, 876, (9th Cir.1986) (grant of summary judgment is reviewed de novo). Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

3. $10,000 Limit on Nursing Care Benefits.

Appellant contends that the district court erred in granting summary judgment for appellees because (1) Postmasters and Prudential were required to comply with an OPM directive to provide him unlimited private duty nursing care benefits, and (2) the Plan's Catastrophic Protection provision requires Postmasters and Prudential to provide nursing care benefits without regard to the $10,000 limitation stated elsewhere in the policy.

a) OPM Directive.

Appellant cites two sections of FEHBA which he contends grant OPM the authority to require Postmasters and Prudential to provide him with unlimited nursing care benefits.

5 U.S.C. Sec. 8902(j) provides that "[e]ach contract under this chapter shall require the carrier to agree to pay for or provide a health service ... in an individual case if [OPM] finds that the ... family member ... is entitled thereto under the terms of the contract." This provision does not grant OPM authority unilaterally to alter or amend the terms of the Plan; it requires only that the carrier comply with OPM's interpretation of the Plan. OPM's consistently held view is that, under the Plan's terms, appellant is not entitled to unlimited benefits. As a result, Postmasters and Prudential were not required, under section 8902(j), to provide appellant benefits in excess of the $10,000 limit.

Appellant also cites as support 5 U.S.C. Sec. 8909(b)(2). That section states that OPM shall set aside not more than three percent of the payments to each FEHBA plan as a contingency reserve which may be used, among other purposes, to increase the benefits in the plan from which the reserves are derived. The contingency reserve is a resource OPM can use in...